SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 3, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period from __________________ to _________________
Commission file number 1-6083
NOODLE KIDOODLE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-1771705
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification
Number)
105 PRICE PARKWAY, FARMINGDALE, NEW YORK 11735
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code (516) 293-5300
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed
since Last Report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter periods that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirement for the past 90 days. YES X No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date
7,579,640 shares outstanding as of September 13, 1996.
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Condensed Consolidated Balance Sheets
August 3, 1996, July 29, 1995, and February 3, 1996 3
Condensed Consolidated Statements of Operations
Thirteen and Twenty-Six Weeks Ended August 3, 1996 and
July 29, 1995 4
Condensed Consolidated Statements of Cash Flows
Twenty-Six Weeks Ended August 3, 1996 and July 29, 1995 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION 10
SIGNATURES 11
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<CAPTION>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
August 3, July 29, February 3,
1996 1995 1996
(In thousands, except share data)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $18,074 $11,952 $ 7,272
Merchandise inventories 14,110 7,207 10,328
Prepaid expenses and other current assets 3,210 2,674 3,043
Net assets of discontinued operations - 12,469 3,584
Total current assets 35,394 34,302 24,227
Property, plant and equipment - net 15,627 8,049 12,994
Other assets 69 48 55
Total Assets $51,090 $42,399 $37,276
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 5,251 $ 3,929 $ 5,283
Accrued expenses and taxes 4,473 9,150 4,913
Net liabilities of discontinued operations 4,032 - -
Total current liabilities 13,756 13,079 10,196
Commitments and contingencies - - -
Stockholders' equity:
Preferred stock-authorized 1,000,000,
500,000 and 1,000,000 shares, par
value $.001, $1.00 and $.001,
respectively, (none issued) - - -
Common stock-authorized 15,000,000,
10,000,000 and 15,000,000 shares,
par value $.001, $.10 and $.001,
issued 8,483,901, 6,720,276 and
6,300,401 shares, respectively 8 627 6
Capital in excess of par value 42,975 26,202 26,955
Retained earnings (1,857) 6,283 3,911
41,126 33,112 30,872
Less treasury stock, at cost, 924,261
shares 3,792 3,792 3,792
Total stockholders' equity 37,334 29,320 27,080
Total Liabilities and Stockholders' Equity $51,090 $42,399 $37,276
See accompanying notes to Condensed Consolidated Financial Statements.
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<TABLE>
<CAPTION>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands except per share amounts)
UNAUDITED
Thirteen Weeks Ended Twenty-Six Weeks Ended
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 9,531 $3,939 $18,644 $7,220
Costs and expenses:
Cost of product sold including
buying and warehousing costs 6,085 2,543 12,012 4,662
Selling and administrative expenses 6,731 3,196 12,831 5,708
12,816 5,739 24,843 10,370
Operating loss (3,285) (1,800) (6,199) (3,150)
Interest income 220 137 451 272
Interest expense (10) (11) (20) (22)
Loss from continuing operations
before income taxes (3,075) (1,674) (5,768) (2,900)
Income taxes (benefit) - - - -
Net loss from continuing operations (3,075) (1,674) (5,768) (2,900)
Discontinued operations:
Loss from discontinued operations,
net of income tax benefit of $-0-
and $-0- respectively - (1,074) - (1,914)
Loss on disposal of discontinued
operations including operating
loss of $8,907 during the
disposal period (including income
taxes of $1,602) - (7,145) - (7,145)
Net loss from discontinued operations - (8,219) - (9,059)
Net loss $(3,075) $(9,893) $(5,768) $(11,959)
Net loss per share:
Continuing operations $ (.41) $ (.32) $ (.78) $ (.55)
Discontinuing operations - (1.55) - (1.72)
Net loss per share $ (.41) $ (1.87) $ (.78) $ (2.27)
Average shares outstanding 7,558 5,287 7,399 5,275
See accompanying notes to Condensed Consolidated Financial Statements
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<TABLE>
<CAPTION>
NOODLE KIDODOLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDTED STATEMENTS OF CASH FLOWS
UNAUDITED
Twenty-six Weeks Ended
August 3, July 29,
1996 1995
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations $(5,768) $(2,900)
Adjustments to reconcile to net cash provided
(used):
Depreciation 824 361
Decrease (increase) in non-cash working capital
accounts:
Merchandise inventories (3,782) (2,877)
Prepaid expenses, taxes and other current assets (167) 306
Trade accounts payable, accrued expenses and other 130 497
Income taxes - (133)
Net cash (used in) continuing operations (8,763) (4,746)
Net loss from discontinued operations - (9,059)
Adjustments to reconcile to net cash provided (used):
Depreciation - 240
Provision for doubtful accounts - 186
Deferred income taxes - 1,602
Decrease (increase) in non-cash working capital
accounts and other assets and liabilities 7,616 15,757
Net cash provided by discontinued operations 7,616 8,726
Net cash provided by (used in)operating
activities (1,147) 3,980
Cash flows from investing activities:
Property additions - continuing operations (4,059) (3,247)
Property additions - discontinued operations - (93)
Other (14) (5)
Net cash (used in)investing activities (4,073) (3,345)
Cash flow from financing activities:
Proceeds from public offering 16,009 -
Proceeds from exercise of employees stock options 13 409
Net cash provided by financing activities 16,022 409
Net increase in cash and cash equivalents 10,802 1,044
Cash and cash equivalents - beginning of year 7,272 10,908
Cash and cash equivalents - end of period $18,074 $11,952
See accompanying notes to Condensed Consolidated Financial Statements
</TABLE>
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NOODLE KIDOODLE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1:
The accompanying unaudited condensed consolidated
financial statements have been prepared in
accordance with the instructions to Form 10-Q and do
not include all the information and footnotes
required by generally accepted accounting principles
for complete financial statements. In the opinion
of management, all adjustments are of a normal
recurring nature. This financial information should
be read in conjunction with the financial statements
and notes thereto included in the Registrant's
annual report on Form 10-K for the year ended
February 3, 1996.
It should be noted that amounts included in the
financial statements of the prior year have been
reclassified to conform to the current year's
presentation.
Due to the seasonal nature of the Company's
business, results for the interim period are not
necessarily indicative of the results to be expected
for the fiscal year.
NOTE 2:
All highly liquid investments with a maturity date of
three months or less are considered to be cash
equivalents. These investments are stated at cost
which approximates market.
NOTE 3:
Income tax provisions are based on estimated annual
effective tax rates. The loss from continuing
operations for the periods ended August 3, 1996 and
July 29, 1995 provided no tax benefit.
NOTE 4:
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
sales or liquidation of substantially all of the
operating assets.
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.
Revenues from such operations were $20.8 million for
the thirteen weeks ended July 29, 1995 and $41.9
million for the corresponding twenty-six week
period.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended August 3, 1996 Compared With
Thirteen Weeks Ended July 29, 1995
Continuing Operations
Net sales increased $5.6 million to $9.5 million in the
thirteen week period ended August 3, 1996 from $3.9 million
in the comparable period in the prior year. Sales from
Noodle Kidoodle stores increased $5.9 million to $9.0 million
in the second quarter from $3.1 million in the comparable
period in the prior year, primarily due to the addition of 14
new stores, of which nine opened in the second half of last
year and five opened in the first half of the current year.
Other retail sales decreased $.3 million to $.5 million in
the thirteen week period ended August 3, 1996 from $.8
million in the comparable period in the prior year. The
Company closed one Playworld store and two Toy Park stores in
the first half ended August 3, 1996. The Company operated 23
Noodle Kidoodle stores and one Playworld store at August 3,
1996 compared to nine Noodle Kidoodle stores, two Playworld
stores, and two Toy Park stores at July 29, 1995.
Gross profit (derived from net sales less the cost of product
sold, which includes buying and warehousing costs) increased
$2.1 million to $3.5 million in the thirteen week period
ended August 3, 1996 from $1.4 million in the comparable
period in the prior year. Gross profit, as a percentage of
net sales ("gross profit percentage"), increased to 36.2% in
the second quarter ended August 3, 1996 from 35.4% in the
comparable period in the prior year. Gross profit percentage
at Noodle Kidoodle stores increased to 36.4% in the current
quarter from 35.0% in the comparable period in the prior
year, primarily due to the leveraging of buying costs and
lower merchandise costs partially offset by higher
warehousing costs as a result of operating its own warehouse
in the current period. The Noodle Kidoodle stores shared a
warehouse with the discontinued wholesale business in the
comparable period in the prior year. Gross profit percentage
in the other retail stores decreased to 32.3% in the second
quarter ended August 3, 1996 from 36.9% in the comparable
period in the prior year, primarily from markdowns taken in
closing the two Toy Park stores in the second quarter ended
August 3, 1996.
Selling and administrative expenses increased $3.5 million to
$6.7 million in the thirteen week period ended August 3, 1996
from $3.2 million in the comparable period in the prior year.
These increases resulted from higher direct store expenses of
$2.7 million as a result of changes in the store base and
higher home office costs of $.8 million reflecting the
infrastructure that has been put into place since the end of
the second quarter of last year. Selling and administrative
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expenses, as a percent of net sales, decreased to 70.6% in
the thirteen week period ended August 3, 1996 from 81.1% in
the comparable period in the prior year. The decrease
resulted primarily from the leveraging of home office and
advertising expenses over a larger store base.
Net loss from continuing operations increased $1.4 million to
$3.1 million ($.41 per share) in the period ended August 3,
1996 from $1.7 million ($.32 per share) in the comparable
period in the prior year.
Net loss from discontinued operations was $8.2 million ($1.55
per share) in the second quarter ended July 29, 1995. The
discontinued operations represents the Company's wholesale
operation which was closed effective August 30, 1995.
Twenty-Six Weeks Ended August 3, 1996
Compared with Twenty-Six Weeks Ended July 29, 1995
Continuing Operations
Net sales increased $11.4 million to $18.6 million in the
twenty-six week period ended August 3, 1996 from $7.2 million
in the comparable period in the prior year. Noodle Kidoodle
sales increased $11.7 million to $17.2 million in the current
six months from $5.5 million in the comparable period in the
prior year, primarily due to the addition of 14 new stores,
of which nine opened in the second half of last year, and
five opened in the first half of this year. Other retail
sales decreased $.3 million to $1.4 million in the six-month
period ended August 3, 1996 from $1.7 million in the
comparable period in the prior year, primarily due to the
closing of one Playworld store and two Toy Park stores in the
first half of the current fiscal year. The Company operated
23 Noodle Kidoodle stores and one Playworld store at August
3, 1996, compared to nine Noodle Kidoodle stores, two
Playworld stores, and two Toy Park stores at July 29, 1995.
Gross profit (derived from net sales less the cost of product
sold, which includes buying and warehousing costs) increased
$4.1 million to $6.6 million in the twenty-six week period
ended August 3, 1996 from $2.5 million in the comparable
period in the prior year. Gross profit as a percent of net
sales ("gross profit percentage") increased to 35.6% in the
current six-month period from 35.4% in the comparable period
in the prior year. Gross profit percentage at Noodle
Kidoodle stores increased to 35.8% for the six-month period
ended August 3, 1996 from 35.3% in the comparable period in
the prior year, primarily due to the leveraging of buying
costs and lower merchandise costs partially offset by higher
warehousing costs as a result of operating its own warehouse
in the current period. The Noodle Kidoodle stores shared a
warehouse with the discontinued wholesale business in the
comparable period in the prior year. Gross profit percentage
in the other retail stores decreased to 32.4% in the six
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month period ended August 3, 1996 from 35.9% in the
comparable period in the prior year, primarily from markdowns
taken in closing one Playworld store and two Toy Park stores
in the first half of the current year.
Selling and administrative expenses increased $7.1 million to
$12.8 million in the twenty-six week period ended August 3,
1996 from $5.7 million in the comparable period in the prior
year. These increases resulted from higher direct store
expenses of $5.5 million due to changes in the store base and
higher home office costs of $1.6 million reflecting the
infrastructure that has been put into place since the end of
the second quarter of last year. Selling and administrative
expenses as a percent of net sales decreased to 68.8% in the
twenty-six week period ended August 3, 1996 from 79.1% in the
comparable period in the prior year. The decrease resulted
primarily from leveraging of home office and advertising
expenses over a larger store base.
Net loss from continuing operations increased $2.9 million to
$5.8 million ($.78 per share) in the six-months period ended
August 3, 1996 from $2.9 million ($.55 per share) in the
comparable period in the prior year.
Net loss from discontinued operations was $9.1 million ($1.72
per share) in the twenty-six week period ended July 29, 1995.
The discontinued operations represents the Company's
wholesale operation which was closed effective August 30,
1995.
Liquidity and Capital Resources
During the twenty-six week period ended August 3, 1996 the
Company used $8.8 million of cash flows for operating
activities of the continuing operations primarily to fund the
net loss of $5.8 million as well as an increase in working
capital requirements due to changes in the store base of $3.8
million partially offset by depreciation of $.8 million. The
discontinued operations generated $7.6 million of cash flows
primarily from the sale of the Farmingdale facility. The
Company also used cash to fund investing activities of $4.1
million primarily for the purchase of fixed assets for new
stores. In February 1996, the Company completed a secondary
stock offering of 2.2 million shares of common stock, which
resulted in $16.0 million in cash flows from financing
activities. As a result of the foregoing, cash and cash
equivalents increased during the period by $10.8 million.
In February 1996 the Company obtained a line of credit from a
bank which is unsecured, provides for maximum borrowing of
$10.0 million in short-term loans and letters of credit, and
expires on April 30, 1997.
The Company has available net operating loss carryforwards of
approximately $15.0 million for income tax purposes.
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Quarterly fluctuation in results and seasonality.
The timing of new store openings and related pre-opening
expenses and the amount of revenue contributed by new 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 operations are highly seasonal, a
significant portion of a typical store's revenues is
generated during the Company's fourth fiscal quarter, which
coincides with the Christmas selling season. The Company
does not expect to generate positive operating income during
the first three fiscal quarters for the foreseeable future.
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held July 9,
1996, the following persons were elected as
directors of the Company:
Class 2 Directors: (until the 1999 meeting)
Robin Farkas
Stewart Katz
Robert Stokvis
The following Directors continue in office for the
duration of their terms:
Class 1 Directors: (until the 1998 meeting)
Lester Greenman
Barry W. Ridings
Irwin Tantleff
Class 3 Directors: (until the 1997 meeting)
Stanley Greenman
Joseph A. Madenberg
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NOODLE KIDOODLE, INC.
(Registrant)
Date: September 16, 1996 STANLEY GREENMAN
Stanley Greenman, Chairman
of the Board, Chief
Executive Officer, and
Treasurer
(Principal Executive
Officer)
Date: September 16, 1996 WILLIAM A. JOHNSON, JR.
William A. Johnson, Jr.,
Vice President, Chief
Financial Officer and
Secretary
(Principal Financial and
Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> AUG-03-1996
<CASH> 18,074
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 14,110
<CURRENT-ASSETS> 35,394
<PP&E> 19,370
<DEPRECIATION> 3,743
<TOTAL-ASSETS> 51,090
<CURRENT-LIABILITIES> 13,756
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 37,326
<TOTAL-LIABILITY-AND-EQUITY> 51,090
<SALES> 18,644
<TOTAL-REVENUES> 18,644
<CGS> 12,012
<TOTAL-COSTS> 12,012
<OTHER-EXPENSES> 12,831
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> (5,768)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,768)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,768)
<EPS-PRIMARY> (0.78)
<EPS-DILUTED> (0.78)
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