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 November 1, 1997
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)
6801 JERICHO TURNPIKE, SYOSSET, NEW YORK 11791
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code (516) 677-0500
105 PRICE PARKWAY, FARMINGDALE, NEW YORK 11735
(Former Address)
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 December 5, 1997.
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Condensed Consolidated Balance Sheets
November 1, 1997, November 2, 1996 and February 1, 1997 3
Condensed Consolidated Statements of Operations
Thirteen and Thirty-Nine Weeks Ended November 1, 1997
and November 2, 1996 4
Condensed Consolidated Statements of Cash Flows
Thirty-Nine Weeks Ended November 1, 1997 and
November 2, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION 10
SIGNATURES 11
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NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
November 1, November 2, February 1,
1997 1996 1997
(In thousands, except share data)
<CAPTION>
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 259 $ 9,803 $11,333
Merchandise inventories 26,035 22,190 17,318
Prepaid expenses and other current assets 2,754 3,758 2,752
Total current assets 29,048 35,751 31,403
Property, plant and equipment - net 18,881 17,758 19,583
Other assets 89 81 50
Total Assets $48,018 $53,590 $51,036
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 18 $ - $ 18
Trade accounts payable 10,474 10,135 5,049
Accrued expenses and taxes 7,074 5,065 7,092
Net liabilities of discontinued operations 1,135 3,435 2,425
Total current liabilities 18,701 18,635 14,584
Long-term debt 739 - 753
Commitments and contingencies - - -
Stockholders' equity:
Preferred stock-authorized 1,000,000
shares, par value $.001,(none issued) - - -
Common stock-authorized 15,000,000,
par value $.001, issued 8,503,901 shares,
respectively 9 8 9
Capital in excess of par value 43,063 43,064 43,063
Retained earnings (deficit) (10,702) (4,325) (3,581)
32,370 38,747 39,491
Less treasury stock, at cost, 924,261
shares 3,792 3,792 3,792
Total stockholders' equity 28,578 34,955 35,699
Total Liabilities and Stockholders' Equity $48,018 $53,590 $51,036
See accompanying notes to Condensed Consolidated Financial Statements.
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NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
Thirteen Weeks Ended Thirty-Nine Weeks Ended
November 1, November 2, November 1, November 2,
1997 1996 1997 1996
(In thousands, except per share data)
<CAPTION>
<S> <C> <C> <C> <C>
Net sales $15,641 $11,845 $44,830 $30,489
Costs and expenses:
Cost of product sold including
buying and warehousing costs 9,699 7,241 27,902 19,253
Selling and administrative expenses
expenses 8,409 7,296 24,331 20,127
18,108 14,537 52,233 39,380
Operating loss (2,467) (2,692) (7,403) (8,891)
Interest income 90 233 350 684
Interest expense (22) (9) (68) (29)
Loss before income tax (2,399) (2,468) (7,121) (8,236)
Income taxes (benefit) - - - -
Net loss $(2,399) $(2,468) $(7,121) $(8,236)
Net loss per share $ (.32) $ (.33) $ (.94) $ (1.10)
Weighted average shares outstanding 7,580 7,574 7,580 7,457
See accompanying notes to Condensed Consolidated Financial Statements
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NOODLE KIDODOLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDTED STATEMENTS OF CASH FLOWS
UNAUDITED
Thirty-Nine Weeks Ended
November 1, November 2,
1997 1996
(In thousands)
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net loss from operations $(7,121) $(8,236)
Adjustments to reconcile to net cash provided
(used):
Depreciation 1,847 1,315
Decrease (increase) in non-cash working capital
accounts:
Merchandise inventories (8,717) (11,862)
Prepaid expenses, taxes and other current assets (2) (715)
Trade accounts payable, accrued expenses and taxes 5,407 5,615
Net cash (used in) continuing operations (8,586) (13,883)
(Decrease)increase in net liabilities of
discontinued operations (1,290) 7,019
Net cash provided by (used in) discontinued
operations (1,290) 7,019
Net cash (used in)operating activities (9,876) (6,864)
Cash flows from investing activities:
Property additions (1,206) (6,690)
Other 22 (26)
Net cash (used in)investing activities (1,184) (6,716)
Cash flows from financing activities:
Proceeds from public offering - 16,009
Proceeds form exercise of employee stock options - 102
Reduction of long-term debt (14) -
Net cash provided by (used in) financing
activities (14) 16,111
Net increase (decrease) in cash and cash equivalents (11,074) 2,531
Cash and cash equivalents - beginning of period 11,333 7,272
Cash and cash equivalents - end of period $ 259 $ 9,803
See accompanying notes to Condensed Consolidated Financial Statements
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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 and
are subject to year-end adjustments. However, in
the opinion of management, all known adjustments
(which consist primarily of normal recurring
accruals) have been made to present fairly the
consolidated operating results for the unaudited
periods. 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 1,
1997.
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 for the periods
ended November 1, 1997 and November 2, 1996
provided no tax benefit.
NOTE 4.
Recent Accounting Pronouncements: In February
1997, the Financial Accounting Standards Board
released Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 changes the computational
guidelines for earnings per share information. The
Company will adopt the provisions of SFAS 128 in
its January 31, 1998 consolidated financial
statements. SFAS 128 will eliminate the
presentation of primary earnings per share and
replace it with basic earnings per share. Basic
earnings per share differs from primary earnings
per share because common stock equivalents are not
considered in computing basic earnings per share.
Fully diluted earnings per share will be replaced
with diluted earnings per share. Diluted earnings
per share is similar to fully diluted earnings per
share, except in determining the number of dilutive
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shares outstanding for options and warrants, the
proceeds that would be received upon the conversion
of all dilutive options and warrants are assumed to
be used to repurchase the Company's common shares
at the average market price of such stock during
the period. For fully diluted earnings per share,
the higher of the average market price or ending
market price is used. The Company expects that the
adoption of SFAS 128 will have no material effect
upon its reported results.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended November 1, 1997 Compared With
Thirteen Weeks Ended November 2, 1996
Net sales increased $3.8 million to $15.6 million in the
thirteen week period ended November 1, 1997 from $11.8
million in the comparable period in the prior year. Sales
from Noodle Kidoodle stores increased $3.8 million to $15.5
million in the third quarter from $11.7 million in the
comparable period in the prior year, primarily due to the
addition of four new stores of which three opened in the
fourth quarter of last year and one opened in the first half
of the current year, coupled with an increase in comparable
store sales of 8%. Other retail sales remained virtually
flat in the thirteen week period ended November 1, 1997
compared to the comparable period in the prior year. The
Company closed its last Playworld store on October 31, 1997.
The Company operated thirty-two Noodle Kidoodle stores at
November 1, 1997 compared to twenty-eight Noodle Kidoodle
stores and one Playworld store at November 2, 1996.
Gross profit (derived from net sales less the cost of
product sold, which includes buying and warehousing costs)
increased $1.3 million to $5.9 million in the thirteen week
period ended November 1, 1997 from $4.6 million in the
comparable period in the prior year. Gross profit, as a
percentage of net sales ("gross profit percentage"),
decreased to 38.0% in the third quarter ended November 1,
1997 from 38.9% in the comparable period in the prior year.
Gross profit percentage at Noodle Kidoodle stores increased
to 37.7% in the current quarter from 36.9% in the comparable
period in the prior year, primarily due to the leveraging of
warehousing costs and lower merchandise costs.
Selling and administrative expenses increased $1.1 million
to $8.4 million in the thirteen week period ended November
1, 1997 from $7.3 million in the comparable period in the
prior year. These increases resulted from higher direct
store expenses of $1.5 million as a result of changes in the
store base, offset by reductions in home office costs of $.3
million and reduced store pre-opening expenses of $.1
million. Selling and administrative expenses, as a percent
of net sales, decreased to 53.8% in the thirteen week period
ended November 1, 1997 from 61.6% in the comparable period
in the prior year. The decrease resulted primarily from the
leveraging of home office and store expenses over a larger
sales base.
Net loss decreased $.1 million to $2.4 million ($.32 per
share) in the period ended November 1, 1997 from $2.5
million ($.33 per share) in the comparable period in the
prior year.
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Thirty-Nine Weeks Ended November 1, 1997
Compared with Thirty-Nine Weeks Ended November 2, 1996
Net sales increased $14.3 million to $44.8 million in the
thirty-nine week period ended November 1, 1997 from $30.5
million in the comparable period in the prior year. Sales
from Noodle Kidoodle stores increased $15.6 million to $44.6
million in the current nine-month period from $29.0 million
in the comparable period in the prior year, primarily due to
the addition of four new stores, of which three opened in
the fourth quarter of last year, and one opened in the first
half of this year, coupled with an increase in comparable
store sales of 11%. Other retail sales decreased $1.3
million to $.2 million in the nine-month period ended
November 1, 1997 from $1.5 million in the comparable period
in the prior year, primarily due to the closing of one
Playworld store and two Toy Park stores during the first
half of last year. The Company closed its last Playworld
store on October 31, 1997. The Company operated thirty-two
Noodle Kidoodle stores at November 1, 1997, compared to
twenty-eight Noodle Kidoodle stores and one Playworld store
at November 2, 1996.
Gross profit (derived from net sales less the cost of
product sold, which includes buying and warehousing costs)
increased $5.7 million to $16.9 million in the thirty-nine
week period ended November 1, 1997 from $11.2 million in the
comparable period in the prior year. Gross profit as a
percent of net sales ("gross profit percentage") increased
to 37.8% in the current nine-month period from 36.9% in the
comparable period in the prior year. Gross profit
percentage at Noodle Kidoodle stores increased to 37.7% for
the nine-month period ended November 1, 1997 from 36.3% in
the comparable period in the prior year, primarily due to
the leveraging of buying and warehousing costs over a larger
sales base and lower merchandise costs.
Selling and administrative expenses increased $4.2 million
to $24.3 million in the thirty-nine week period ended
November 1, 1997 from $20.1 million in the comparable period
in the prior year. These increases resulted from higher
direct store expenses of $4.7 million due to changes in the
store base, offset by reduced home office and store pre-
opening costs of $.5 million. Selling and administrative
expenses as a percent of net sales decreased to 54.3% in the
thirty-nine week period ended November 1, 1997 from 66.0% in
the comparable period in the prior year. The decrease
resulted primarily from leveraging of home office and store
expenses over a larger sales base.
Net loss decreased $1.1 million to $7.1 million ($.94 per
share) in the nine-month period ended November 1, 1997 from
$8.2 million ($1.10 per share) in the comparable period in
the prior year.
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Liquidity and Capital Resources
During the thirty-nine week period ended November 1, 1997
the Company used $9.9 million of cash in its operating
activities, primarily to fund the net loss of $7.1 million,
an increase in working capital of $3.3 million, and a
reduction in the net liabilities of discontinued operations
of $1.3 million, offset by $1.8 million of depreciation
charges. The increase in working capital was primarily the
result of increased inventory levels for the upcoming
holiday selling season. The Company used $1.2 million of
cash to fund investing activities, primarily to purchase
fixed assets for new and remodeled stores. As a result of
the foregoing, cash and cash equivalents decreased during
the period by $11.1 million.
In June 1997 the Company entered into a $15.0 million, three
year revolving credit facility with The CIT Group/Business
Credit, Inc. This facility may be used for direct
borrowings and letters of credit, and is secured by the
Company's inventory.
The Company has available net operating loss carryforwards
of approximately $20.0 million for income tax purposes.
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 revenue 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 6. Exhibits and Reports on Form 8-K.
(a) None
(b) The Company filed a report on Form 8-K on November
21, 1997 which reported the following information
under Items 5 and 7 of that form.
The Board of Directors of Noodle Kidoodle, Inc.
voted unanimously to amend and restate the By-Laws
of the Company on November 12, 1997. The actual
amended and restated By-Laws should be referred to
in order to obtain a complete understanding of the
changes.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
NOODLE KIDOODLE, INC.
(Registrant)
Date: December 12, 1997 STANLEY GREENMAN
/s/Stanley Greenman,Chairman
of the Board, Chief
Executive Officer, and
Treasurer
(Principal Executive
Officer)
Date: December 12, 1997 KENNETH S. BETUKER
/s/Kenneth S. Betuker
Vice President, Chief
Financial Officer and
Secretary
(Principal Financial and
Accounting Officer)
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<PERIOD-END> NOV-01-1997
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<SALES> 44,830
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<CGS> 27,902
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