SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED).
For the fiscal year ended January 31, 1998
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 No.)
6801 Jericho Turnpike, Syosset, NY 11791
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number,
including area code (516)-677-0500
Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, $.001 par value NASDAQ National Market
Securities registered pursuant to Section 12 (g) of the Act:
NONE
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates
of the registrant as of April 17, 1998 was $46,425,295 based on
the closing price of same stock on that date.
The number of shares of common stock outstanding as of April 17,
1998 was 7,579,640.
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Documents Incorporated by reference: Certain portions of
Registrant's definitive proxy statement with respect to its 1998
Annual Meeting of Stockholders to be filed, pursuant to
Regulation 14A under the Securities Exchange Act of 1934, with
the Commission within 120 days of the close of Registrant's
fiscal year ended January 31, 1998 are incorporated by reference
into Part III of this report.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business 4
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of
Security Holders 8
Part II
Item 5. Market for Registrant's Common Stock and
Related Stockholders' Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of 11
Operations
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 16
PART III
Item 10. Directors and Executive Officers of
the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial
Owners and Management 16
Item 13. Certain Relationships and Related
Transactions 16
PART IV
Item 14. Exhibits, Financial Statements,
Schedules and Reports on Form 8-K 17
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PART I
ITEM 1. BUSINESS.
(a) General
Noodle Kidoodle, Inc., a Delaware corporation (the "Company" or
"Registrant") is a specialty retailer of a broad assortment of
educationally oriented, creative and non-violent children's
products, including toys, books, games, video and audio tapes,
computer software, crafts and other learning products.
The Company was founded in 1946 and, doing business under its
former name Greenman Bros. Inc., engaged in the retail toy
business as well as the wholesale distribution of general
merchandise, with an emphasis on toys, stationery and housewares.
During the 1980s, the Company operated a number of retail toy
stores, including a chain of 330 stores under the Circus World
name located principally in shopping malls in approximately 30
states. The Company sold the Circus World stores in Fiscal 1991
but continued to operate a number of retail toy stores under the
Playworld name. The Company opened its first Noodle Kidoodle
store in November 1993, and opened three additional Noodle
Kidoodle stores in Fiscal 1995. During Fiscal 1996, management
determined that the Company should focus exclusively on its
retail business by expanding and developing the Noodle Kidoodle
retail concept. Accordingly, in August 1995, the Company adopted
a new business plan and ceased operating its wholesale division.
The Company, in December 1995, changed its name from Greenman
Bros. Inc. to Noodle Kidoodle, Inc. and, in January 1996,
changed its jurisdiction of incorporation to Delaware.
The Company operated 32 Noodle Kidoodle stores at the close of
the fiscal year ended January 31, 1998 ("Fiscal 1998") located in
New York, New Jersey, Connecticut and the Boston, Chicago, and
Detroit metropolitan areas. The Company also operated one other
retail toy store under the Playworld name during Fiscal 1998
which was closed on October 31, 1997.
(b) Financial Information About Industry Segments
Registrant currently operates in an industry segment which
involves the retail sales of children's toys and other products.
In prior years it also operated in a second segment which was the
wholesale distribution of general merchandise. This segment was
discontinued in August 1995 and the results are disclosed in
discontinued operations. See Note 2 (Discontinued Operations) of
the Notes to Consolidated Financial Statements.
(c) Narrative Description of Business
Noodle Kidoodle, Inc. is a specialty retailer of a broad
assortment of educationally oriented, creative and non-violent
children's products. The Noodle Kidoodle concept offers
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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 small
boutiques, while providing an entertaining shopping environment
through interactive play areas and frequent in-store events.
The Company's stores range from approximately 6,100 to 13,300
square feet and average approximately 10,500 square feet. Each
store 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 20,000
stock-keeping units ("SKU's"), conveniently displayed in separate
merchandise departments, such as "Science & Nature" and "Arts &
Crafts", which are identified by eye-catching signs that are
visual as well as verbal so that children can understand them.
All of the products carried in Noodle Kidoodle stores conform to
the Company's creative, non-violent and educational merchandising
strategy. The Company generally does not carry mass market
television advertised toys. However, in certain product
categories, the Company does carry brand name products which fit
the Noodle Kidoodle philosophy, such as Crayola, Lego, Playmobil,
Mattel, the full line of Walt Disney video titles and the
Goosebumps line of books. The Company purchases merchandise from
over 550 suppliers. There is currently one supplier, Ty, Inc.,
which represents slightly more than 9% of total purchases.
The Company operated 32 Noodle Kidoodle stores at the end of its
1998 fiscal year, located in New York, New Jersey, Connecticut
and the Boston, Chicago and Detroit metropolitan areas. It has
opened one store in fiscal 1999 in the Detroit metropolitan area
and expects to open at least five additional stores during the
year. As of April 20, 1998, the Company has signed six leases
for new store locations. Five are scheduled to open this year and
one next year. The Company plans to open stores in Dallas and
Plano, TX in the Spring of 1998, in Austin, TX and Boca Raton,
FL in the summer of 1998 and in Hartsdale, NY in the Fall of
1998. A store in Southlake, TX is scheduled to open in 1999.
The Company believes that there are opportunities for nationwide
expansion over the longer term.
The Company believes that the following elements are important to
its retailing concept:
Interactive Shopping Environment - Each Noodle Kidoodle store
is designed with children in mind. Each store has designated
play areas where children and their parents are encouraged to
explore toys and games in keeping with the Company's "try
before you buy" philosophy. Among the key interactive
features of each store are the Computer Center, "Kidoodle
Theater" and the Electronic Learning Center.
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Broad Assortment of Imaginative Products - Noodle Kidoodle
stores offer a broad assortment of products designed to
stimulate a child's imagination and contribute to his or her
growth and development, consistent with the Company's slogan
that "Kids learn best when they're having fun." To keep its
merchandise mix fresh and exciting, the Company continually
seeks innovative new products.
In-Store Events - The Company provides without charge
frequent 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 conducts a targeted direct
mail marketing program and continuously updates its customer
database for this purpose.
Competitive Pricing - Noodle Kidoodle offers everyday
competitive pricing. Many products are regularly discounted
and prices in general are believed to be competitive with
those featured by superstores carrying similar lines of
merchandise.
Backlog is not considered relevant to an understanding of
Registrant's business. Registrant is required to carry
substantial amounts of inventory in the months of September
through November of each year in order to meet holiday delivery
requirements.
Registrant did not have any customers that represented more than
10% of consolidated revenues for the year ended January 31, 1998.
Registrant's business is highly seasonal and approximately 45% of
its revenues occur in the fourth quarter.
The retail toy business is highly competitive. The Company
competes on the basis of its stores' interactive environment,
broad merchandise selection, superior customer service and
competitive pricing. The Company competes with a variety of mass
merchandisers, superstores and other toy retailers, including
Toys R Us and Kay Bee Toy Stores and other store formats selling
children's products, such as discount stores and smaller
specialty toy stores. Retailing of children's educational
products is a relatively new concept. Included among the
Company's direct competitors are Zany Brainy, Learningsmith,
Store of Knowledge, Learning Express and Imaginarium.
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Some of the Company's competitors are much larger in terms of
sales volume and have more capital and greater management
resources than the Company. If any of the Company's larger
competitors were to increase their focus on the educational
market or if any regional competitors were to expand their
activities in the markets primarily served by the Company, it
could be adversely affected. If any of the Company's major
competitors seek to gain or retain market share by reducing
prices, 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.
As of January 31, 1998, the Company employed 926 people, of whom
351 were employed full-time. The Company also employs additional
part-time personnel during the pre-Christmas season. The Company
believes that its relations with its employees are generally
good.
The Company has registered several service marks and trademarks
with Federal and State authorities, including Noodle Kidoodle
(registered), Oodles & Oodles of Fun Things to Learn
(registered), Kidoodle Animation (registered), and the Company's
slogan "Kids learn best when they're having fun" (registered).
The Company believes it has all licenses necessary to conduct its
business.
ITEM 2. PROPERTIES.
The Company leases all of its Noodle Kidoodle stores. Original
lease terms generally are for ten years, and many leases contain
renewal options. The Company's stores are generally located in
either strip shopping centers or mall locations. The 32 stores
operating at the end of Fiscal 1998 ranged in size from
approximately 6,100 to 13,300 square feet.
The Company currently supports its retail operations with an
owned 269,000 square foot distribution center in Phillipsburg,
New Jersey. The Company had previously supported its total
retail and wholesale operations with three other distribution
centers located in Farmingdale, New York, West Haven, Connecticut
and Birmingham, Alabama. In conjunction with discontinuing its
wholesale operations the Company has ceased operating the
Farmingdale and West Haven distribution centers. The Company
discontinued the use of the Birmingham center in 1989 and has
been sub-leasing the space to third parties since such
discontinuance. The Company sold the Farmingdale facility in
July 1996. The lease for the West Haven center expired in March
1996. The Company does not believe that disposing of or
discontinuing operations in any of these facilities will have a
material adverse effect on its operations or financial condition.
The Company's executive offices are located at Syosset, New York.
The Company has a two-year lease for its executive offices which
contains renewal options.
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Registrant believes that the foregoing facilities are adequate
for its present operations and such facilities are maintained in
a good state of repair.
See Note 6 (Commitments and Contingencies) of the Notes to
Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings other than
claims and lawsuits arising in the normal course of its business
which, in the opinion of the Company's management, are not
individually or in the aggregate material to its business.
As disclosed last year, the Company was a defendant in a
purported plantiffs' class action filed in August 1995, in the
United States District Court for the Eastern District of New York
against Playmobil USA, Inc., a toy manufacturer ("Playmobil"),
and against the Company and another retailer, as defendant class
representatives of a purported class of those toy retailers
nationwide selling products manufactured by Playmobil. The case
was later consolidated with two others pending against Playmobil.
On October 23, 1996, plaintiffs filed an Amended Complaint
dropping the Company as a defendant, but naming it and three
other retailers as "Co-conspirators who were induced to
participate and did participate in an alleged price fixing scheme
organized by Playmobil." No damages or other forms of relief are
requested against the Company. These developments confirm the
Company's earlier view that this litigation was not material to
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDERS' MATTERS.
The Company's Common Stock is quoted on the NASDAQ National
Market under the symbol "NKID". The following table sets forth,
for the periods indicated, the high and low sales prices per
share for the Common Stock for each of the fiscal quarters
indicated for Fiscal 1998 and for the fiscal year ended February
1, 1997 ("Fiscal 1997").
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<TABLE>
High Low
<CAPTION>
<S> <C> <C>
Fiscal 1998
First Quarter $ 3.88 $ 2.50
Second Quarter 4.50 2.38
Third Quarter 4.13 2.75
Fourth Quarter 5.13 3.69
Fiscal 1997
First Quarter $ 9.50 $ 6.25
Second Quarter 8.63 5.88
Third Quarter 8.00 5.38
Fourth Quarter 7.25 3.00
</TABLE>
As of January 31, 1998 there were approximately 638 holders of
record of Common Stock.
The Company has not paid cash dividends on its Common Stock since
1969 and currently anticipates that it will retain all available
funds generated by its operations for the development and growth
of its business. Any future determination as to dividend policy
will be made at the discretion of the Board of Directors of the
Company and will depend on a number of factors, including the
future earnings, capital requirements, financial condition and
business prospects of the Company and such other factors as the
Board of Directors may deem relevant.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below reflects the
consolidated results of operations, financial condition and
operating data of the Company for the periods indicated, after
giving retroactive effect to the Company's discontinued wholesale
business segment. This data should be read in conjunction with
the Consolidated Financial Statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this report. The
consolidated financial data for the fifty-two weeks ended January
31, 1998, February 1, 1997, fifty-three weeks ended February 3,
1996, and the fifty-two weeks ended January 28, 1995, and January
29, 1994 are derived from the consolidated financial statements
of the Company which have been audited by Janover Rubinroit, LLC,
independent certified public accountants.
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<TABLE>
SELECTED FINANCIAL DATA
<CAPTION>
Fiscal Years Ended
Jan. 31, Feb. 1, Feb. 3, Jan. 28, Jan. 29,
1998 1997 1996 1995 1994
(52 weeks)(52 weeks)(53 weeks) (52 weeks) (52 weeks)
(In thousands except share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales $81,664 $59,410 $32,143 $23,308 $20,712
Net income (loss) from:
Continuing operations $(1,918) $(7,492) $(5,272) $(4,490) $(1,180)
Discontinued operations - - (9,059) 1,096 1,889
Net income (loss) $(1,918) $(7,492) $(14,331) $(3,394) $ 709
Basic and diluted income
(loss) per share:
Continuing operations $ (.25) $ (1.00) $ (.99) $ (.86) $ (.22)
Discontinued operations - - (1.70) .21 .35
Net income (loss) per share $ (.25) $ (1.00) $ (2.69) $ (.65) $ .13
Weighted average shares:
Basic 7,580 7,488 5,320 5,220 5,338
Diluted 7,587 7,601 5,498 5,361 5,368
BALANCE SHEET DATA:
Working capital $15,977 $16,819 $14,031 $35,667 $39,810
Total assets 49,481 51,036 37,276 48,042 49,629
Stockholders' equity 33,781 35,699 27,080 40,870 44,064
Long term obligations 733 753 - - -
Dividends per common share - - - - -
</TABLE>
In accordance with FASB No. 128, as a result of losses from continuing
operations, the inclusion of employee stock options were antidilutive and,
therefore, were not utilized in the computation of diluted earnings per share.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Fiscal Year Ended January 31, 1998 Compared to
Fiscal Year Ended February 1, 1997.
Continuing Operations
Net sales increased a total of 37.5% to $81.7 million in Fiscal
1998 from $59.4 million in Fiscal 1997. Noodle Kidoodle sales
increased $23.8 million or 41.2% to $81.5 million in Fiscal 1998
from $57.7 million in the prior year, primarily due to increased
comparable store sales of 16%, the addition of one store during
Fiscal 1998 and thirteen stores during Fiscal 1997. Other retail
sales decreased 88.2% to $.2 million in Fiscal 1998 from $1.7
million in the prior year, primarily as a result of closing the
last Playworld store on October 31, 1997. The Company operated
32 Noodle Kidoodle stores at January 31, 1998 compared to 31
Noodle Kidoodle stores and one Playworld store at February 1,
1997.
Gross profit (derived from net sales less cost of products sold,
which includes buying and warehousing costs) increased 36.7% to
$31.3 million for Fiscal 1998 from $22.9 million in Fiscal 1997.
Overall gross profit as a percent of net sales ("gross profit
percentage") decreased to 38.3% in Fiscal 1998 from 38.5% in
Fiscal 1997. The decrease in gross profit percentage was
primarily attributable to increased markdowns of .7%, offset by
lower merchandise costs, decreases in buying costs (including
the salaries and related expenses of the Company's buyers) and
greater sales leverage against warehousing costs which contain
some fixed elements. Gross profit in the other retail store was
immaterial to the overall gross profit percentage.
Selling and administrative expenses increased 8.0% to $33.6
million in Fiscal 1998 from $31.1 million in the prior year.
These increases resulted primarily from higher direct store
expenses which increased $4.6 million due to change in the store
base and higher sales levels, offset by a reduction in home
office expenses of $1.9 million and a $.2 million reduction in
store pre-opening costs. The reduction in home office expenses
reflects steps taken last year to reduce administrative staff by
approximately 20%. Selling and administrative expenses as a
percentage of net sales decreased to 41.1% in Fiscal 1998 from
52.4% in the prior year, primarily as a result of leveraging
selling and administrative expenses which did not rise
commensurately with increased sales levels.
Net loss from continuing operations decreased 74.7% to $1.9
million ($.25 per share) in Fiscal 1998 from $7.5 million ($1.00
per share) in the prior year. The net loss in both Fiscal 1998
and Fiscal 1997 did not include tax benefits. At January 31,
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1998, the Company had approximately $21.4 million of net
operating loss carryforwards.
Fiscal Year Ended February 1, 1997 Compared to
Fiscal Year Ended February 3, 1996
Continuing Operations
Net sales increased a total of 85.0% to $59.4 million in Fiscal
1997 from $32.1 million in fiscal year ended February 3, 1996
("Fiscal 1996"). Noodle Kidoodle sales increased $30.0 million
or 108.3% to $57.7 million in Fiscal 1997 from $27.7 million in
the prior year, primarily due to the addition of thirteen Noodle
Kidoodle stores during Fiscal 1997. Other retail sales decreased
61.4% to $1.7 million in Fiscal 1997 from $4.4 million in the
prior year, primarily as a result of the closing of one Playworld
store and two Toy Park stores in the first half of Fiscal 1997.
Comparable store sales were virtually flat. The Company operated
31 Noodle Kidoodle stores and one Playworld store at February 1,
1997 compared to 18 Noodle Kidoodle stores, two Playworld stores
and two Toy Park stores at February 3, 1996. Fiscal 1997
contained 52 weeks compared to 53 weeks in Fiscal 1996. Sales
for the extra week in Fiscal 1996 represented 1.7% of annual
sales.
Gross profit (derived from net sales less cost of products sold,
which includes buying and warehousing costs) increased 86.2% to
$22.9 million for Fiscal 1997 from $12.3 million in Fiscal 1996.
Overall gross profit as a percentage of net sales ("gross profit
percentage") increased to 38.5% in Fiscal 1997 from 38.3% in
Fiscal 1996. The increase in gross profit percentage was
primarily attributable to the increased sales volume at Noodle
Kidoodle stores, which generated higher margins, offset by
decreased sales and margins at the other retail stores. Gross
profit percentage at Noodle Kidoodle stores increased to 38.5% in
Fiscal 1997 from 37.9% in the prior year, primarily as a result
of leveraging buying costs (including the salaries and related
expenses of the Company's buyers) partially offset by increases
in the cost of merchandise. Warehousing costs, which contain
some fixed elements remained flat and did not rise commensurately
with the increased sales levels. Gross margin in the other
retail stores decreased to 36.5% in Fiscal 1997 from 40.7% in the
prior year, primarily due to markdowns taken to liquidate
inventories in three stores that were closed in the first half of
Fiscal 1997 offset by lower buying and warehousing costs.
Selling and administrative expenses, excluding the provision for
restructuring in Fiscal 1996, increased 75.7% to $31.1 million in
Fiscal 1997 from $17.7 million in the prior year. These increases
resulted primarily from; higher direct store expenses, which
increased $9.1 million due to changes in the store base; non-
recurring charges of $.6 million for upgrading the stores' point
of sale system and a provision for severance costs related to a
20% administrative staff reduction; and higher home office
expenses. Selling and administrative expenses as a percentage of
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net sales decreased to 52.4% in Fiscal 1997 from 55.0% in the
prior year, primarily as a result of increased sales due to an
increased store base.
Provision for restructured operations was $.5 million in Fiscal
1996 related to the closing of certain other retail stores. This
included losses from store operations from the date of
announcement until closing, employee severance costs, estimated
lease liabilities, loss on liquidation of inventories and
disposition of assets and other related restructuring costs.
Net loss from continuing operations increased 41.5% to $7.5
million ($1.00 per share) in Fiscal 1997 from $5.3 million ($.99
per share) in the prior year. The net loss in both Fiscal 1997
and Fiscal 1996 did not include tax benefits. At February 1,
1997, the Company had approximately $18.0 million of net
operating loss carryforwards.
Discontinued Operations
In Fiscal 1997 the Company's discontinued operations had no
sales. No income or loss was recognized from these operations in
Fiscal 1997.
Net sales were $51.9 million in Fiscal 1996.
Operating loss before provision for discontinued operations was
$1.9 million in Fiscal 1996.
Provision for loss on disposal of discontinued operations was
$7.1 million in Fiscal 1996 related to the disposal of the
wholesale business, including the estimated losses through the
disposal period and the anticipated sale of two of the Company's
distribution centers, net of income tax expense of $1.6 million.
Net loss from discontinued operations was $9.1 million ($1.70 per
share) in Fiscal 1996 including the $7.1 million ($1.34 per
share) provision for loss on disposal of discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
During the past three fiscal years the Company satisfied the cash
requirements for its continuing retail operations principally
through the sale of securities, 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.
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<TABLE>
<CAPTION>
Fiscal Years Ended
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Net cash provided by (used in)
Operating activities:
Continuing operations $ 2,673 $(9,438) $(7,281)
Discontinued operations (1,252) (1,585) 12,128
Investing activities (1,637) (1,798) (8,960)
Financing activities (18) 16,882 477
Net increase (decrease) in cash
and cash equivalents (234) 4,061 (3,636)
Cash and cash equivalents -
beginning of year 11,333 7,272 10,908
Cash and cash equivalents -
end of year $11,099 $ 11,333 $ 7,272
</TABLE>
During Fiscal 1998, the Company generated $2.7 million of cash
from operating activities of its continuing operations, primarily
from a net loss of $1.9 million offset by non-cash charges of
$2.7 million and a decrease in working capital of $1.9 million.
The net liabilities of discontinued operations were reduced by
$1.3 million during the year. Net cash used in investing
activities was $1.6 million, primarily to purchase fixed assets
for new and remodeled stores. As a result of the foregoing, cash
and cash equivalents decreased during the year by $.2 million.
During Fiscal 1997, the Company generated $16.9 million of cash
from financing activities, principally from the sale of new
Common Stock, the net proceeds of which were approximately $16.0
million. Net cash used in investing activities was $1.8 million,
composed of property additions for new stores and for upgrading
the stores' point-of-sale computer system, which together totaled
$9.4 million, offset by $7.6 million of proceeds from the sale of
property from discontinued operations. Cash was also used to
fund $9.4 million of cash requirements for continuing operations,
attributable to a net loss of $7.5 million and increased working
capital needs of $4.2 million due to new store openings and
increased inventory levels, offset by non-cash charges of $2.3
million. Inventory increased from $10.3 million at February 3,
1996 to $17.3 million at February 1, 1997, primarily resulting
from new store openings. As a result of the foregoing, cash and
cash equivalents increased during the year by $4.1 million.
During Fiscal 1996, the Company generated $12.1 million of cash
from discontinued operations, primarily attributable to
reductions in inventory and other working capital of $20.4
million and $.8 million of non-cash charges offset by a net loss
of $9.1 million, which included a $7.1 million provision for the
discontinuance of the wholesale operations. This cash was used
primarily to fund $7.3 million of cash requirements for
continuing retail operations, attributable to increases in
working capital needs of $3.5 million due to new store openings
and increased inventory levels as well as a net loss of $5.3
million. Inventory increased from $4.3 million at January 28,
1995 to $10.3 million at February 3, 1996 primarily as a result
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of new store openings. The Company also used cash to fund
investing activities of $9.0 million, primarily for the purchase
of fixed assets for new stores. As a result of the foregoing,
cash and cash equivalents decreased during the year by $3.6
million.
During the past several fiscal years, the Company did not require
any cash borrowings under its $10.0 million revolving credit
line, which expired in June 1995. In February 1996 the Company
obtained a line of credit from a bank which was unsecured and
provided for maximum outstandings of $10.0 million in short-term
loans and letters of credit. That line of credit expired on May
31, 1997. 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,
receivables and certain other assets.
The Company expects to fund its near-term cash requirements
principally from its existing cash balances and its revolving
credit facility. The Company expects to finance its long-term
expansion plan with internally and externally generated funds,
which may include borrowings under future credit facilities, and
through the sale of equity, equity-related or debt securities.
There can be no assurance that financing will be available in
amounts, or at rates or on terms and conditions acceptable to the
Company.
The Company anticipates that capital expenditures in Fiscal 1999
will be approximately $3.2 million, primarily to finance new
stores.
The Company has available net operating loss carryforwards of
approximately $21.4 million for income tax purposes.
Seasonality
The Company's operations are highly seasonal and approximately
45% of its revenues fall within the Company's fourth quarter
which coincides with the Christmas selling season. New stores
are expected to be opened throughout the year, but generally
before the Christmas selling season, which will make the
Company's fourth quarter revenues an even greater percentage of
the total year's revenues. Operations during the first three
quarters are not expected to be profitable for the foreseeable
future.
-15-
<PAGE>
Impact of Inflation
The impact of inflation on the Company's results of operations
has not been significant. The Company attempts to pass on
increased costs by increasing product prices over time.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to directors and executive officers of
the Company is incorporated herein by reference to the
information set forth under the captions "Election of Directors",
"Executive Officers", and "Compliance with Section 16(a) of the
Exchange Act" in the Company's Proxy Statement for its 1998
Annual Meeting of Stockholders (the "1998 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to executive compensation is
incorporated herein by reference to the information set forth
under the captions, "Committees, Meetings, and Director
Compensation" and "Executive Compensation", excluding the
information under the captions "Executive Compensation -
Compensation and Stock Option Committee Report on Executive
Compensation" and "Executive Compensation - Performance Graph",
in the Company's 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information with respect to security ownership is incorporated
herein by reference to the information set forth under the
caption "Security Ownership" in the Company's 1998 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to certain relationships and related
transactions is incorporated herein by reference to the
information, if any, set forth under the caption "Certain
Relationships and Related Transactions" in the Company's 1998
Proxy Statement.
-16-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) 1. Financial Statements Page
Independent auditor's report F-1
Consolidated balance sheets at January
31, 1998 and February 1, 1997 F-2
Consolidated statements of operations for
the years ended January 31, 1998,
February 1, 1997 and February 3, 1996 F-3
Consolidated statements of stockholders'
equity for the years ended January 31,
1998, February 1, 1997, and February 3,
1996 F-4
Consolidated statements of cash flows for
the years ended January 31, 1998, February
1, 1997,and February 3, 1996 F-5
Notes to consolidated financial statements F-6
2. Schedules
VIII. Valuation and qualifying accounts (available on
request)
All other schedules have been omitted because they are not
applicable or the required information is shown in the financial
statements or the notes thereto.
The individual financial statements and schedules of Registrant
have been omitted since consolidated financial statements have
been filed and Registrant is primarily an operating company and
all subsidiaries included in the consolidated financial
statements filed are wholly-owned subsidiaries.
Shareholders may obtain a copy of any exhibit not contained
herein free of charge by writing to Kenneth S. Betuker, Vice
President, Chief Financial Officer and Secretary, Noodle
Kidoodle, Inc., 6801 Jericho Turnpike, Syosset, NY 11791.
-17-
<PAGE>
3. Index to Exhibits
(a) The following documents are filed as Exhibits to this
document:
Exhibit
Number Description of Document
<TABLE>
<CAPTION>
<S> <C>
3.1 Certificate of Incorporation of the Registrant
currently in effect, with all amendments thereto
(Incorporated by reference to Exhibit 3.1 to
Registrant's Form S-1 Registration Statement
(Commission File No. 33-65029), effective
February 13, 1996)
3.2 (New York) Certificate of Merger of Noodle
Kidoodle, Inc., a New York corporation, into
Noodle Kidoodle, Inc., a Delaware corporation
(Incorporated by reference to Exhibit 3.2 to
Registrant's Form S-1 Registration Statement
(Commission File No. 33-65029), effective
February 13, 1996)
3.3 Agreement and Plan of Merger of Noodle Kidoodle,
Inc., a New York corporation, and Noodle
Kidoodle, Inc., a Delaware corporation
(Incorporated by reference to Exhibit 3.3 to
Registrant's Form S-1 Registration Statement
(Commission File No. 33-65029), effective
February 13, 1996)
3.4 By-laws of Registrant (Incorporated by reference
to Exhibit 3.4 to Registrant's Form S-1
Registration Statement(Commission File No. 33-
65029), effective February 13, 1996)
3.5 (Delaware) Certificate of Merger of Noodle
Kidoodle, Inc., a New York corporation into
Noodle Kidoodle, Inc., a Delaware corporation
(Incorporated by reference to Exhibit 3.5 to
Registrant's Form S-1 Registration Statement
(Commission File No. 33-65029), effective
February 13, 1996)
3.6 Plan of Merger of C.W.P.W., Inc., a Michigan
corporation, into Noodle Kidoodle, Inc., a
Delaware corporation (Incorporated by reference
to Registrant's Annual Report on Form 10-K for
fiscal year ended February 1, 1997.)
3.7 Certificate of Ownership and Merger of C.W.P.W.,
Inc., a Michigan corporation, into Noodle
Kidoodle, Inc., a Delaware corporation
(Incorporated by reference to Registrant's
Annual Report on Form 10-K for fiscal year ended
February 1, 1997.)
-18-
<PAGE>
3.8 Amended and Restated By-Laws dated November 12,
1997 (Incorporated by reference to Exhibit 3.4
to Registrant's Form S-1 Registration Statement
(Commission File No. 33-65029), effective
February 13, 1996 and Registrant's Report on
Form 8-K dated November 21, 1997)
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)
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,
1998.
10.3* Employment Agreement by and between Registrant
and Stewart Katz dated as of February 1, 1998.
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 (Incorporated by
reference to Exhibit 10.6 to Registrant's Form S-
1 Registration Statement (Commission File No. 33-
65029), effective February 13, 1996)
-19-
<PAGE>
10.7 Purchase and Sale Agreement - Farmingdale
Facility (Incorporated by reference to
Registrant's Annual Report on Form 10-K for the
fiscal year ended February 1, 1997)
27.0* Financial Data Schedule
</TABLE>
(b) The following documents are filed as Schedules to
this Document:
Schedule
Number Description of Document
VIII Valuation and Qualifying Accounts for the
Fiscal Years Ended January 31, 1998, February
1, 1997 and February 3, 1996
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K on November 21,
1997, reporting the amendment and restatement of the By-Laws
of the Company.
* Filed herewith
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
April 29, 1998 BY: /s/Stanley Greenman
Stanley Greenman
Chairman of the Board,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities
and on the date indicated.
/s/Stanley Greenman /s/Robin Farkas
Stanley Greenman Robin Farkas, Director
Chairman of the Board,
Chief Executive Officer,
and Treasurer /s/Lester Greenman
(Principal Executive Officer) Lester Greenman, Director
/s/Stewart Katz /s/Joseph Madenberg
Stewart Katz, President, Joseph Madenberg, Director
Chief Operating Officer,
Assistant Secretary and Director
/s/Melvin C. Redman
Melvin C. Redman, Director
/s/Kenneth S. Betuker
Kenneth S. Betuker
Vice President, /s/Barry W. Ridings
Chief Financial Officer Barry W. Ridings, Director
and Secretary
(Principal Financial and
Accounting Officer) /s/Robert Stokvis
Robert Stokvis, Director
-21-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Noodle
Kidoodle, Inc.
We have audited the accompanying consolidated balance sheets
of Noodle Kidoodle, Inc. and Subsidiaries as of January 31,
1998 and February 1, 1997 and the related consolidated
statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended
January 31, 1998. 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 31, 1998 and February 1, 1997 and the results
of their operations and cash flows for each of the years in
the three year period ended January 31, 1998 in conformity
with generally accepted accounting principles.
Janover Rubinroit, LLC
/s/ Janover Rubinroit, LLC
Garden City, New York
March 17, 1998
F-1
<PAGE>
<TABLE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, 1998 and February 1, 1997
<CAPTION>
January 31, February 1,
1998 1997
(In thousands except share data)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $11,099 $11,333
Merchandise inventories 16,821 17,318
Prepaid expenses and other current assets 3,024 2,752
Total current assets 30,944 31,403
Property, plant and equipment at cost 24,820 23,687
Less accumulated depreciation 6,306 4,104
18,514 19,583
Other assets 23 50
Total Assets $49,481 $51,036
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 20 $ 18
Trade accounts payable 6,048 5,049
Accrued expenses and taxes 7,726 7,092
Net liabilities of discontinued operations 1,173 2,425
Total current liabilities 14,967 14,584
Long-term debt 733 753
Commitments and contingencies - -
Stockholders' equity:
Preferred stock-authorized 1,000,000 shares,
par value $.001 (none issued) - -
Common stock-authorized 15,000,000 shares,
par value $.001; issued 8,503,901 shares 9 9
Capital in excess of par value 43,063 43,063
Accumulated deficit (5,499) (3,581)
37,573 39,491
Less treasury stock, at cost, 924,261 shares 3,792 3,792
Total stockholders' equity 33,781 35,699
Total Liabilities and Stockholders' Equity $49,481 $51,036
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years Ended
January 31, 1998, February 1, 1997 and February 3, 1996
<CAPTION>
January 31, February 1, February 3,
1998 1997 1996
(In thousands except share data)
<S> <C> <C> <C>
Net sales $81,664 $59,410 $32,143
Costs and expenses:
Cost of products sold including
buying and warehousing costs 50,388 36,542 19,825
Selling and administrative expenses 33,552 31,124 17,680
Provision for restructured operations - - 500
83,940 67,666 38,005
Operating loss (2,276) (8,256) (5,862)
Interest income 448 839 633
Interest expense (90) (75) (43)
Loss from continuing operations
before income taxes (1,918) (7,492) (5,272)
Income taxes (benefit) - - -
Net loss from continuing operations (1,918) (7,492) (5,272)
Discontinued operations:
Loss (no income tax) - - (1,914)
Operating loss of $7,305 including gain
from disposal of assets and income taxes
of $1,602 - - (7,145)
Net loss from discontinued operations - - (9,059)
Net loss $(1,918) $(7,492) $(14,331)
Basic and diluted loss per share:
Continuing operations $ (.25) $ (1.00) $ (.99)
Discontinued operations - - (1.70)
Net loss per share $ (.25) $ (1.00) $ (2.69)
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Fiscal Years Ended
January 31, 1998, February 1, 1997, and February 3, 1996
(In thousands)
<CAPTION>
Capital in Retained Treasury Stock
Common Stock Excess of Earnings (at Cost)
Shares Amount Par Value (Deficit) Shares Amount
<S> <C> <C> <C> <C. <C> <C>
Balance - January 28, 1995 6,185 $ 619 $25,801 $18,242 924 $ 3,792
Exercise of stock options 115 12 529 - - -
Change in par value of
common stock - (625) 625 - - -
Net loss for the year - - - (14,331) - -
Balance - February 3, 1996 6,300 6 26,955 3,911 924 3,792
Common stock offering, net 2,180 3 16,007 - - -
Exercise of stock options 24 - 101 - - -
Net loss for the year - - - (7,492) - -
Balance - February 1, 1997 8,504 9 43,063 (3,581) 924 3,792
Net loss for the year - - - (1,918) - -
Balance - January 31, 1998 8,504 $ 9 $43,063 $(5,499) 924 $ 3,792
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended
January 31, 1998, February 1, 1997 and February 3, 1996
(In thousands)
<CAPTION>
January 31, February 1, February 3,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations $(1,918) $(7,492) $(5,272)
Adjustments to reconcile to net cash
provided (used):
Depreciation 2,490 1,926 1,028
Restructuring charges - non-cash portion - - 500
Loss on disposal of fixtures and equipment 243 327 -
Decrease (increase) in non-cash
working capital accounts:
Merchandise inventories 497 (6,990) (5,998)
Prepaid expenses and other current assets (272) 291 (63)
Trade accounts payable 999 (234) 3,021
Accrued expenses and taxes 634 2,734 (497)
Net cash provided by (used in) continuing
operations 2,673 (9,438) (7,281)
Net loss from discontinued
operations - - (9,059)
Adjustments to reconcile to net cash
provided (used):
Decrease (increase) in non-cash working
capital accounts and other (1,252) (1,585) 21,187
Net cash provided by (used in)
discontinued operations (1,252) (1,585) 12,128
Net cash provided by (used in) operating
activities 1,421 (11,023) 4,847
Cash flows from investing activities:
Proceeds from sales of property -
discontinued operations - 7,594 -
Property additions:
Continuing operations (1,664) (9,397) (8,877)
Discontinued operations - - (86)
Other 27 5 3
Net cash used in investing activities (1,637) (1,798) (8,960)
Cash flows from financing activities:
Proceeds from sale of common stock - 16,010 -
Increase in long-term debt - 780 -
Maturities of long-term debt (18) (9) (64)
Exercise of employee options - 101 541
Net cash provided by (used in) financing
activities (18) 16,882 477
Net increase (decrease) in cash and cash
equivalents (234) 4,061 (3,636)
Cash and cash equivalents - beginning of year 11,333 7,272 10,908
Cash and cash equivalents - end of year $11,099 $11,333 $ 7,272
Supplemental cash flow information:
Net cash paid (received) during the year for:
Interest expense $ 91 $ 75 $ 43
Income taxes, net - - (1,512)
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-5
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
The following summary of the Company's major accounting policies is
presented to assist in the interpretation of the financial statements.
Principles of consolidation
The consolidated financial statements include the accounts of the parent
company and all subsidiary companies. All significant intercompany
balances and transactions are eliminated in consolidation. The Company and
its subsidiaries are on a 52-53 week accounting period ending on the
Saturday closest to January 31. Fiscal 1998 and 1997 each contained 52
weeks and Fiscal 1996 contained 53 weeks.
Description of business
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.
Cash and cash equivalents
All highly liquid investments purchased with a maturity of three months or
less are considered to be cash equivalents. The Company places its
temporary cash investments in high grade instruments with high credit
quality financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Earnings per share
Effective December 15, 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share". Statement No. 128 replaced
the previously reported primary and fully diluted earnings per share with
basic and diluted earnings per share. Under the new requirements for
calculating earnings per share, the dilutive effect of stock options will
be excluded from basic earnings per share but included in the computation
of diluted earnings per share. All earnings per share amounts have been
restated as required to comply with Statement No. 128.
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 vary among the classifications, but range for
buildings and improvements from 10-40 years and for fixtures and equipment
from 4-10 years.
F-6
<PAGE>
Pre-opening expenses
Costs incurred in the opening of new stores are amortized over the first
twelve months of Operations.
Income taxes
Deferred taxes provided under SFAS No. 109 result principally from
temporary differences in depreciation, capitalized inventory costs,
restructuring charges, and allowance for doubtful accounts.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue
and expense during the reporting period. Actual results could differ from
those estimates.
Fair value disclosures
The carrying amounts of cash and cash equivalents, other current assets,
accounts payable and other current liabilities approximates fair value
because of the short term maturity of these instruments. The stated value
of long-term debt, including current maturities, approximates fair value.
NOTE 2 - DISCONTINUED OPERATIONS:
On August 30, 1995, the Company adopted a formal plan to discontinue its
wholesale business segment. The plan provided 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 liabilities of the wholesale business segment are
being accounted for as a discontinued operation, and accordingly, its
operating results and net liabilities 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 losses until such disposal or
liquidation is completed.
F-7
<PAGE>
Summary of operating results from discontinued operations are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
February 3,
1996
(In thousands)
<S> <C>
Net sales $51,931
Gross profit 9,726
Operating loss (1,914)
Provision for discontinued
operations (7,145)
Net loss (9,059)
</TABLE>
Net liabilities of this segment at January 31, 1998 and February 1, 1997
consisted principally of accounts payable, accrued expenses and capitalized
lease obligations of $2,350,000 and $3,712,000, respectively, less accounts
receivable and properties of $1,177,000, and $1,287,000, respectively.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
Fiscal Years Ended
January 31, February 1,
1998 1997
(In thousands)
<S> <C> <C>
Land $ 272 $ 272
Building and improvements 1,734 1,665
Fixtures and equipment 11,511 10,735
Leasehold improvements 11,303 11,015
24,820 23,687
Less accumulated depreciation (6,306) (4,104)
$18,514 $19,583
</TABLE>
F-8
<PAGE>
NOTE 4 - ACCRUED EXPENSES AND TAXES:
<TABLE>
<CAPTION>
Fiscal Years Ended
January 31, February 1,
1998 1997
(In thousands)
<S> <C> <C>
Payroll and related benefits $1,082 $ 752
Rent and occupancy 1,802 1,532
Insurance 472 312
Advertising 845 466
Restructuring charges 697 1,424
Fixtures and equipment 206 602
Other 2,622 2,004
$7,726 $7,092
</TABLE>
F-9
<PAGE>
NOTE 5 - LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Fiscal Years Ended
January 31, February 1,
1998 1997
(In thousands)
<S> <C> <C>
Revolving credit facility $ - $ -
8% unsecured promissory note,
due in quarterly installments
through 2016 753 771
753 771
Less current maturities 20 18
$733 $753
</TABLE>
The Company has a revolving credit agreement which provides for maximum
borrowings of $15 million until June 27, 2000. Borrowings may not exceed
certain percentages of, and are collateralized by, inventories,
receivables, and certain other assets. The agreement provides for an
annual collateral management fee and a commitment fee on the unused portion
of the commitment. Outstanding borrowings bear interest, at the option of
the Company, based on the prime rate or LIBOR. The agreement contains
certain covenants which among other items, limits the payment of cash
dividends when borrowings under the agreement are outstanding.
Annual maturities of long-term debt during the next five years are $20,000,
$21,000, $23,000, $25,000 and $26,000.
NOTE 6 - COMMITMENTS AND CONTINGENCIES:
Minimum annual commitments under non-cancelable leases in effect at January
31, 1998 are as follows (In thousands):
<TABLE>
<CAPTION>
<S> <C>
1999 $ 8,886
2000 8,918
2001 8,919
2002 9,041
2003 8,831
Thereafter 35,281
$79,876
</TABLE>
At January 31, 1998, the Company and its subsidiaries were lessees of
office space, stores and transportation 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.
F-10
<PAGE>
Rental expense (income) for operating leases was as follows:
<TABLE>
Fiscal Years Ended
January 31, February 1, February 3,
1998 1997 1996
(In thousands)
<CAPTION>
<S> <C> <C> <C>
Minimum rentals $6,979 $ 5,430 $3,089
Taxes and other costs 2,637 2,115 1,335
Sublease rentals - (295) (761)
$9,616 $ 7,250 $3,663
</TABLE>
Litigation
The Company is not party to any legal proceedings other than claims and
lawsuits arising in the normal course of its business which, in the opinion
of the Company's management, are not individually or in the aggregate
material to its business.
Employment agreements
The Company has employment agreements with certain officers. Those
agreements provide for minimum salary levels as well as for incentive
bonuses which are payable if specified performance goals are attained.
NOTE 7 - CAPITAL STOCK:
Common Stock
On February 13, 1996, the Company completed a public offering of 2.18
million shares (including the over allotment option) of common stock at
$8.00 per share. Proceeds from the offering, net of commissions and
expenses, were approximately $16.0 million. The net proceeds from the
offering were used primarily to finance the Company's store expansion plans
as well as for general corporate purposes, including approximately $1.0
million to improve the Company's MIS systems capabilities.
Preferred stock
The Company has 1,000,000 authorized (non-issued) shares of preferred
stock, par value $0.001, consisting of 440,000 shares of Series A Junior
Participating Preferred reserved for use under the Stockholders' Rights
Plan and the remainder for other unspecified purposes.
Stockholders' rights plan
Each outstanding share of the Company's common stock carries a stock
purchase right. Under certain circumstances, as defined in a rights
agreement, each right may be exercised to purchase 1/100 of a share of
Series A Junior Participating Preferred Stock for $25.00, subject to
certain anti-dilution adjustments. The rights are redeemable by the
Company or, under certain circumstances, by a third party to whom the
Company assigns its rights at $.01 each until a person or group acquires
fifteen percent of the Company's common stock or until they expire on May
15, 1998.
F-11
<PAGE>
NOTE 8 - STOCK OPTIONS:
Stock incentive plan
The Company's Stock Incentive Plan (the "Plan") for key employees and
consultants, reserves 500,000 shares of common stock for the issuance of
stock options, stock appreciation rights (SAR's), dividend equivalent
rights, restricted stock, unrestricted stock and performance shares and is
administered by the Compensation and Stock Option Committee (the
"Committee") of the Board of Directors of the Company.
Under the terms of the Plan, options granted may be either non-qualified or
incentive stock options and the exercise price, determined by the
Committee, shall be at least 75% (100% in the case of an incentive stock
option) of the fair market value of a share on the date of grant. SAR's
may be granted (subject to specified restrictions) in connection with all
or any part of, or independently of, any option granted under the Plan. No
SAR's, dividend equivalent rights, restricted stock, unrestricted stock or
performance shares have been granted to date under the Plan. Options
granted under the Plan are exercisable in installments; however, no options
are exercisable within one year or later than ten years from the date of
grant.
Stock option plan for outside directors
The Company's Outside Directors Stock Option Plan reserves 125,000 shares
of common stock for the issuance of stock options related to this plan.
The Stock Option Plan for Outside Directors provides that upon the initial
election to the Board, each eligible director is granted an option to
purchase 5,000 shares of common stock and 4,000 shares each year thereafter
at the fair market value on the date of grant. The options have a term of
five years and become exercisable 50% on the first anniversary of the date
of grant and 50% on the second anniversary of the date of grant.
The following summary sets forth the activity under the Company's stock
incentive plans:
<TABLE>
<CAPTION>
Fiscal Years Ended
January 31, 1998 February 1, 1997
Weighted Avg. Weighted Avg.
Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 630,859 $ 5.81 580,359 $ 7.52
Granted 247,000 $ 3.39 272,000 $ 7.52
Exercised - ( 23,500) $ 4.34
Terminated (358,034) $ 5.36 (198,000) $ 9.79
Outstanding at end of
year 519,825 $ 4.97 630,859 $ 5.81
Exercisable at end of
year 141,406 $ 6.01 312,609 $ 4.77
Available for grant at
end of year 128,800 253,500
</TABLE>
F-12
<PAGE>
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting For Stock Based Compensation", and, accordingly, no
compensation cost has been recognized for the stock option plans.
The fair value of options at date of grant was estimated using the Black-
Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
Fiscal Years Ended
January 31, February 1, February 3,
1998 1997 1996
<S> <C> <C> <C>
Expected life (years) 5 5 5
Risk-free interest rate 6.0% 6.0% 6.5%
Expected volatility 44.7% 45.3% 35.4%
Dividend yield 0.0% 0.0% 0.0%
</TABLE>
Had compensation for options granted in Fiscal 1998, 1997 and 1996 been
determined consistent with SFAS No. 123, the Company's net loss and net
loss per share would approximate the pro-forma amounts indicated below (In
thousands except share data).
<TABLE>
<CAPTION>
Fiscal Years Ended
January 31, February 1, February 3,
1998 1997 1996
<S> <C> <C> <C>
Net loss $(2,042) $(7,558) $(14,400)
Net loss per share $ (.27) $ (1.01) $ (2.71)
</TABLE>
The effects of applying SFAS No. 123 in this pro-forma disclosure are not
indicative of future effects. SFAS No. 123 does not apply to awards prior
to Fiscal 1996, and additional awards in future years are anticipated.
The weighted average fair value of options granted was $3.25, $4.09, and
$5.17 for Fiscal 1998, 1997 and 1996 respectively.
NOTE 9 - TAXES ON INCOME:
Income taxes (benefit) consist of the following:
<TABLE>
<CAPTION>
Fiscal Years Ended
January 31, February 1, February 3,
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ - $ - $ -
State and local - - -
- - -
Deferred - - 1,602
- - 1,602
Discontinued operations - - 1,602
Continuing operations $ - $ - $ -
</TABLE>
F-13
<PAGE>
A reconciliation of the statutory federal income tax rate attributable to
loss from continuing operations to the effective income tax rate is as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Federal at statutory rates (34)% (34)% (34)%
State and local taxes
net of federal tax benefits (4) (4) (4)
Losses with no current tax
benefit 38 38 38
-% -% -%
</TABLE>
Deferred income taxes result from temporary differences in the recognition
of revenue and expense for tax and financial statement purposes. The
components of deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
Fiscal Years Ended
January 31, February 1,
1998 1997
(In thousands)
<S> <C> <C>
Net operating loss carryforward
(expiring in 2011-2013) $ 8,133 $6,760
Capitalizable inventory costs 262 312
Discontinued operations 641 992
Allowance for doubtful accounts 485 485
Restructured operations and other 597 778
Gross deferred tax assets 10,118 9,327
Depreciation (508) (433)
Gross deferred tax liabilities (508) (433)
Net deferred tax assets 9,610 8,894
Valuation allowance 9,610 8,894
Net tax assets $ - $ -
</TABLE>
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 contributions. The Company matches
10% of the first 4% of compensation contributed by the employee.
The Company in the past participated in various multi-employer pension
plans. Contributions and costs were determined in accordance with the
F-14
<PAGE>
provisions of negotiated labor contracts or terms of the plans. The
Company does not administer or control the plans. One of the plans
covering certain former employees, to which the Company and many other
employers made contributions, has been terminated. The Employee Retirement
Income Security Act ("ERISA") imposes certain liabilities upon employers
who are contributors to a multi-employer pension plan in the event of
withdrawal or termination of such a plan. During the year ended February
1, 1997 the Company agreed to settle its liability for approximately
$780,000, payable in quarterly installments over 20 years, plus interest at
8% per annum. The liability was provided for in prior periods and was
charged to discontinued operations in those periods.
NOTE 11 - EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted loss
per share:
<TABLE>
<CAPTION>
Fiscal Years Ended
January 31, February 1, February 3,
1998 1997 1996
(In thousands except share data)
<S> <C> <C> <C>
Numerator
Net loss from continuing
operations - numerator for
basic and diluted loss per
share $ (1,918) $ (7,492) $ (5,272)
Denominator
Denominator for basic loss
per share - weighted average
shares 7,580 7,488 5,320
Effect of dilutive securities -
employee stock options 7 113 178
Denominator for diluted
earnings per share -
weighted average shares
and dilutive potential
common shares 7,587 7,601 5,498
Loss per share:
Basic $ (.25) $ (1.00) $ (.99)
Diluted $ (.25) $ (1.00) $ (.99)
</TABLE>
In accordance with FASB No. 128, as a result of losses from continuing
operations, the inclusion of employee stock options were antidilutive and,
therefore, were not utilized in the computation of diluted earnings per
share.
F-15
<PAGE>
NOTE 12 - INDUSTRY SEGMENTS:
The Company operates substantially in one industry segment which includes
the retail sales of children's toys and other products.
NOTE 13 - PROVISION FOR RESTRUCTURED OPERATIONS:
On August 10, 1994, the Company announced the closing of stores operating
under the name Playworld Toy Stores and a provision of $3,900,000 was
recorded for restructuring costs. The Company provided an additional
$500,000 ($.09 per share) in Fiscal 1996 primarily to reflect the closing
of one additional store that was not anticipated previously.
NOTE 14 - INTERIM FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands except share data)
<S> <C> <C> <C> <C>
Fiscal Year Ended January 31, 1998:
Sales $15,535 $13,654 $15,641 $36,834
Gross profit 5,871 5,115 5,942 14,348
Net income (loss) $(2,003) $(2,719) $(2,399) $ 5,203
Net income (loss) per share:
Basic $ (.26) $ (.36) $ (.32) $ .69
Assuming dilution $ (.26) $ (.36) $ (.32) $ .69
Weighted Average Shares:
Basic 7,580 7,580 7,580 7,580
Assuming dilution 7,580 7,587 7,585 7,594
Fiscal Year Ended February 1, 1997:
Sales $ 9,113 $ 9,531 $11,845 $28,921
Gross profit 3,186 3,446 4,604 11,632
Net income (loss) $(2,693) $(3,075) $(2,468) $ 744
Net income (loss) per share:
Basic $ (.37) $ (.41) $ (.33) $ .10
Assuming dilution $ (.37) $ (.41) $ (.33) $ .10
Weighted Average Shares:
Basic 7,239 7,558 7,574 7,580
Assuming dilution 7,401 7,691 7,692 7,617
</TABLE>
The Company's sales are highly seasonal. Net 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.
F-16
<PAGE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
For the Fiscal Years Ended
January 31, 1998, February 1, 1997 and February 3, 1996
(In thousands)
<CAPTION>
Column A Column B Column C Column D Column E
Additions
(1) (2)
Balance at Charged to Charged to Deductions Balance at
beginning of costs and other end of
year expenses accounts year
<S> <C> <C> <C> <C> <C>
For estimated losses
in collection:
Year ended January 31,
1998 $ 1,277 $ - $ - $ - $ 1,277
Year ended February 1,
1997 $ 1,277 $ - $ - $ - $ 1,277
Year ended February 3,
1996 $ 983 $ 581 $ - $ 287 (a) $ 1,277
</TABLE>
(a) Write-offs net of recoveries
All amounts are included in discontinued operations.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 11,099
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 16,821
<CURRENT-ASSETS> 30,944
<PP&E> 24,820
<DEPRECIATION> 6,306
<TOTAL-ASSETS> 49,481
<CURRENT-LIABILITIES> 14,967
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 33,772
<TOTAL-LIABILITY-AND-EQUITY> 49,481
<SALES> 81,664
<TOTAL-REVENUES> 81,664
<CGS> 50,388
<TOTAL-COSTS> 50,388
<OTHER-EXPENSES> 33,552
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90
<INCOME-PRETAX> (1,918)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,918)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,918)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of February 1, 1998, between
NOODLE KIDOODLE, INC., a Delaware corporation (the "Company"),
and Stanley Greenman (the "Executive").
It is hereby agreed as follows:
1. Nature of Employment: the Company hereby employs
Executive as its Chairman and Chief Executive Officer and confirms the
election of Executive by the Company's Board of Directors as its
Chairman and Chief Executive Officer, and agrees to use its best efforts
to cause Executive to be reelected as during the term of this Agreement
as its Chairman and Chief Executive Officer. Executive accepts
employment upon the terms and conditions hereinafter set forth and
agrees to serve the Company as its its Chairman and Chief Executive
Officer and as a member of its Board of Directors so long as so elected
during the term of this Agreement. The Executive shall report to the
Board of Directors of the Company.
The Executive shall also serve without additional
compensation as an officer and director of all corporations from time to
time owned or controlled by the Company if so elected or appointed. The
Executive shall devote his full time, energies, skills and attention to the
performance of his duties and responsibilities hereunder, and shall
perform them faithfully and diligently. The office of the Executive shall be
located within a 20 mile radius of the Executive's residence on the date of
this Agreement and the Executive shall not be required to locate his office
elsewhere without his prior written consent.
2. Term of Employment: The term of the Executive's
employment under this Agreement shall be for the period commencing as
of February 1, 1998 and terminating on January 31, 2001 unless sooner
terminated by either party for cause or as hereinafter provided.
(a) In the event of the death or "total disability" (as defined
below) of the Executive, the Executive's employment shall terminate as
of the date of his death or the date of his certification of total disability,
in either of which events, Executive, his estate, legal representative or
designee, as the case may be, shall receive the full salary compensation
provided for the Executive in Section 3 below for a period of six (6)
months from the date of the Executive's death or total disability.
-1-
<PAGE>
(b) In the event the Board of Directors of the Company shall
determine, as confirmed by competent medical evidence (which shall
include a certificate from Executive's then personal physician) , that
Executive has become "totally disabled" and, on the same or
subsequent occasion, shall determine that such disability shall have
continued for a period of three (3) consecutive months, then Executive's
employment shall terminate thirtty (30) days after the date upon which
the Company shall have given notice to the Executive of its election to
terminate his employment because of such total disability, provided,
however, that prior to termination the Board of Directors shall have
received confirming competent medical evidence as to the existence of
the Executive's total disability at such time. Any controversy arising in
the determination of whether the Executive shall be deemed to be
"totally disabled" for purposes of his being terminated as provided for
herein shall be settled by an independent physician licensed to practice
medicine selected by the Board of Directors of the Company and
approved by the Executive. Prior to any such termination, the
Company's obligations with respect to compensation and benefits shall
continue during the period of disability.
(c) In the event of a change in control (as defined herein) of
the Company, which results in an actual or constructive termination of
employment, the Executive shall have the right within six (6) months
after any such termination, to terminate his employment hereunder and
to receive an amount, payable in a lump sum as severance pay within
10 days after he shall have given notice of his election to terminate,
equal to the amount by which two hundred ninety-nine percent (299%) of
the base amount exceeds the present value of all other payments which
would be considered as contingent on a change of ownership or control
(other than payments which would not be treated as parachute
payments) under section 280G of the Internal Revenue Code. The
"base amount" for purposes of this subsection (c) shall mean the
average annual compensation which was payable by the Company and
was includable in the Executive's gross income for tax purposes for the
most recent five (5) taxable years of the Executive ending before the
date on which a change in control occurs. A "change in control" for
purposes of this subsection (c) shall mean (i) the acquisition (directly or
indirectly) by any person, entity or group of more than twenty-five
percent (25%) of the outstanding voting stock of the Company
(acquisition shall include accumulation in one or more transactions,
including, without limitation, any issuance, transfer or purchase of stock.,
-2-
<PAGE>
reclassification of securities, stock split, stock dividend or distribution,
reverse stock split, recapitalization, merger or consolidation with
subsidiaries, and any transaction which has the direct or indirect effect of
increasing the proportionate share of the outstanding voting stock of the
Company held by such person, entity or group) , or (ii) the individuals
who currently constitute the directors of the Company, or individuals
elected by more than two-thirds of such current directors to replace any
of such current directors, no longer constitute a majority of the directors
of the Company. A "constructive termination of employment" for
purposes of this subsection (c) shall mean any of the following, if done
without the Executive's consent and having a material adverse effect on
his employment or the conditions under which he works: (i) a change in
the title, duties or responsibilities of the Executive, including the person
or body to whom the Executive reports, (ii) a change in the location
where the Executive's services are rendered, (iii) a change in the office
or secretarial arrangements affecting the Executive, or (iv) any reduction
in compensation or fringe benefits or change of any other term of this
Agreement, or any other breach of this Agreement by the Company. A
constructive termination shall be determined by the Executive in his sole,
reasonable discretion.
3. Compensation:
(a) Subject to the provisions of Section 2, as compensation
for his services hereunder the Company agrees to pay the Executive a
salary, payable at such times as may be customary for the payment of
compensation to other the Company employees, or at such times as the
Executive and the Company shall agree upon, at the rate of $300,000 per
annum during the Term of this Agreement, or at such increased rate as
the Board, with the advice of the Compensation Committee, may from
time to time determine.
(b) In addition to the salary to be paid pursuant to Section 3
(a) , the Executive shall be eligible to participate in the Company's Bonus
Incentive Plan (the "Bonus Plan") or any successor plan thereto, pursuant
to the terms of such Bonus Plan.
(c) The Executive shall also be eligible for grants of stock
options to acquire shares of Common Stock of the Company ("Options")
pursuant to the Company's 1994 Stock Incentive Plan (the "Plan"), or any
successor plan thereto, pursuant to the terms of the Plan.
-3-
<PAGE>
4. Additional Compensation; Benefits: The Board of
Directors of the Company, in its sole and absolute discretion, may at any
time and from time to time pay to the Executive such additional incentive
payments, bonuses and/or profit sharing distributions, in addition to the
compensation provided in Section 3, as the Board of Directors, with the
advice of the Compensation Committee, may determine. The stock
option and compensation committee of the Company in its sole and
absolute discretion may at any time and from time to time award to the
Executive such stock options or other stock based pay under the
Company's stock option plan or otherwise, in addition to the
compensation provided for in Section 3, as such committee or board
may from time to time determine.
The Executive shall, in any event, be entitled to the
continuation of any employee benefits, including life, disability or
accident insurance coverage, currently being received by the
Executive, and shall be eligible to participate in any plan of the
Company available to the employees of the Company and any other
plan which may be adopted in the future with respect to employees or
executives of the Company or any of its operating divisions if he shall
be eligible under the terms of such plan without restriction or limitation
by reason of this Agreement.
The Executive shall also be entitled to paid vacation for
such periods and times as have been heretofore customary for the
Executive.
5. Expenses: the Company shall promptly reimburse the
Executive for all specified items of travel, entertainment and
miscellaneous expenses reasonably incurred by him in connection with
the performance of his duties hereunder upon presentation of vouchers
therefor in accordance with normal procedures and standards
established by the Company for such purposes. the Company shall
also, at its own expense, provide Executive with a new automobile of
the Company's choice and shall bear all expenses of maintaining and
insuring such automobile.
6. Nondisclosure; Noncompetition:
(a) Executive shall not, at any time during or following
expiration or termination of Executive's employment (regardless of the
reason therefor), directly or indirectly, disclose to any person (except in
the regular course of the Company's business), or use in competition
with the Company, any of the Company's trade secrets or confidential
information.
-4-
<PAGE>
(b) For a period of one (1) year following expiration of his
employment or termination of employment for any reason other than (i)
termination by the Company without cause, or (ii) termination by the
Executive in accordance with Section 2(c) hereof, the Executive shall not,
without the Company's written consent, (A) enter into the employ of or
render any services to any person, firm or corporation engaged in any
"Competitive Business" (as defined below); (3) engage in any Competitive
Business for his own account or (C) become interested in any
Competitive Business as an individual, partner, shareholder, creditor,
director, officer, principal, agent, employee, consultant, advisor or in any
other relationship or capacity. As used herein, "Competitive Business"
shall mean operating stores for the retail sale of educationally oriented
products for children, including without limitation, toys, games, books,
video and audio tapes, computer software, crafts, and science and
construction merchandise. The geographic locations in which this
covenant shall be operative shall include a fifty (50) mile radius of any
Noodle Kidoodle store then operated by the Company, or then planned by
the Company to be opened within a twelve month period.
7. Fees and_Expenses: the Company shall pay all legal
fees and related expenses incurred by the Executive as a result of (i)
termination of his employment following a change in control of the
Company (including all such fees and expenses, if any, incurred in
contesting or disputing any such termination or incurred by the Executive
in seeking advice with respect to tax matters relating thereto) or (ii) the
Executive's seeking to obtain or enforce any right or benefit provided by
this Agreement, if the Company shall have denied such right or withheld
such benefit, and if the Executive shall prevail in obtaining or enforcing it.
8. Miscellaneous:
(a) the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of its business and/or assets, by agreement in form and
substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession
had taken place.
-5-
<PAGE>
(b) This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive
should die while any amounts would still be payable to him hereunder if
he had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to
the Executive's devisee, legatee or other designee or, if there be no
such designee, to the Executive's estate.
(c) No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and such officer as may be
specifically designated by the Board of Directors of the Company. No
waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time. No agreements or representations, oral
or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not set forth
expressly in this Agreement.
(d) The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of New York.
(e) In the event that any provision of this Agreement is held
to be invalid or unenforceable in any jurisdiction for any reason unless
narrowed by construction, this Agreement shall, as to such jurisdiction,
be construed as if such invalid or unenforceable provision had been
more narrowly drawn so as not to be invalid or unenforceable; and such
provision, as to such jurisdiction, shall be ineffective to the extent of
such invalidity, prohibition or unenforceability, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provisions in any other jurisdiction.
(f) The invalidity or unenforcibility of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
-6-
<PAGE>
(g) Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by
arbitration in New York, New York in accordance with the rules of the
American Arbitration Association then in effect.
(h) The Executive or his estate or designee shall be entitled
to receive reasonable attorneys' fees, costs and expenses incurred in
enforcing the Executive's rights under this Agreement..
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date and year first above written.
NOODLE KIDOODLE, INC.
By:/s/ Stewart Katz
ATTEST: Name: Stewart Katz
Title: President
By:/s/ Kenneth S. Betuker
Name: Kenneth S. Betuker
Executive:
/s/ Stanley Greenman
-7-
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of February 1, 1998, between NOODLE
KIDOODLE, INC., a Delaware corporation (the "Company"), and
Stewart Katz (the "Executive").
It is hereby agreed as follows:
1. Nature of Employment: the Company hereby employs
Executive as its President and Chief Operating Officer and
confirms the election of Executive by the Company's Board of
Directors as its President and Chief Operating officer, and
agrees to use its best efforts to cause Executive to be
reelected as President and Chief Operating officer during the
term of this Agreement. Executive accepts employment upon the
terms and conditions hereinafter set forth and agrees to serve
the Company as its President and Chief Operating Officer, and as
a member of its Board of Directors so long as so elected during
the term of this Agreement. The Executive shall report to the
Board of Directors of the Company.
The Executive shall also serve without additional
compensation as an officer and director of all corporations from
time to time owned or controlled by the Company if so elected or
appointed. The Executive shall devote his full time, energies,
skills and attention to the performance of his duties and
responsibilities hereunder, and shall perform them faithfully
and diligently. The office of the Executive shall be located
within a 20 mile radius of the Executive's residence on the date
of this Agreement and the Executive shall not be required to
locate his office elsewhere without his prior written consent.
2. Term of Employment: The term of the Executive's
employment under this Agreement shall be for the period
commencing as of February 1, 1998 and terminating on January 31,
2001 unless sooner terminated by either party for cause or as
hereinafter provided.
(a) In the event of the death or "total disability"
(as defined below) of the Executive, the Executive's employment
shall terminate as of the date of his death or the date of his
-1-
<PAGE>
certification of total disability, in either of which events,
Executive, his estate, legal representative or designee, as the
case may be, shall receive the full salary compensation
provided for the Executive in Section 3 below for a period of
six (6) months from the date of the Executive's death or total
disability.
(b) In the event the Board of Directors of the
Company shall determine, as confirmed by competent medical
evidence (which shall include a certificate from Executive's
then personal physician) , that Executive has become "totally
disabled" and, on the same or subsequent occasion, shall
determine that such disability shall have continued for a
period of three (3) consecutive months, then Executive's
employment shall terminate thirtty (30) days after the date
upon which the Company shall have given notice to the Executive
of its election to terminate his employment because of such
total disability, provided, however, that prior to termination
the Board of Directors shall have received confirming competent
medical evidence as to the existence of the Executive's total
disability at such time. Any controversy arising in the
determination of whether the Executive shall be deemed to be
"totally disabled" for purposes of his being terminated as
provided for herein shall be settled by an independent
physician licensed to practice medicine selected by the Board
of Directors of the Company and approved by the Executive.
Prior to any such termination, the Company's obligations with
respect to compensation and benefits shall continue during the
period of disability.
(c) In the event of
a change in control (as defined herein) of the Company, which
results in an actual or constructive termination of employment,
the Executive shall have the right within six (6) months after
any such termination, to terminate his employment hereunder and
to receive an amount, payable in a lump sum as severance pay
within 10 days after he shall have given notice of his election
to terminate, equal to the amount by which two hundred ninety-
-2-
<PAGE>
nine percent (299%) of the base amount exceeds the present
value of all other payments which would be considered as
contingent on a change of ownership or control (other than
payments which would not be treated as parachute payments)
under section 280G of the Internal Revenue Code. The "base
amount" for purposes of this subsection (c) shall mean the
average annual compensation which was payable by the Company
and was includable in the Executive's gross income for tax
purposes for the most recent five (5) taxable years of the
Executive ending before the date on which a change in control
occurs. A "change in control" for purposes of this subsection
(c) shall mean (i) the acquisition (directly or indirectly) by
any person, entity or group of more than twenty-five percent
(25%) of the outstanding voting stock of the Company
(acquisition shall include accumulation in one or more
transactions, including, without limitation, any issuance,
transfer or purchase of stock., reclassification of securities,
stock split, stock dividend or distribution, reverse stock
split, recapitalization, merger or consolidation with
subsidiaries, and any transaction which has the direct or
indirect effect of increasing the proportionate share of the
outstanding voting stock of the Company held by such person,
entity or group) , or (ii) the individuals who currently
constitute the directors of the Company, or individuals elected
by more than two-thirds of such current directors to replace
any of such current directors, no longer constitute a majority
of the directors of the Company. A "constructive termination
of employment" for purposes of this subsection (c) shall mean
any of the following, if done without the Executive's consent
and having a material adverse effect on his employment or the
conditions under which he works: (i) a change in the title,
duties or responsibilities of the Executive, including the
person or body to whom the Executive reports, (ii) a change in
the location where the Executive's services are rendered, (iii)
a change in the office or secretarial arrangements affecting
the Executive, or (iv) any reduction in compensation or fringe
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benefits or change of any other term of this Agreement, or any
other breach of this Agreement by the Company. A constructive
termination shall be determined by the Executive in his sole,
reasonable discretion.
3. Compensation:
(a) Subject to the provisions of Section 2, as
compensation for his services hereunder the Company agrees to
pay the Executive a salary, payable at such times as may be
customary for the payment of compensation to other the Company
employees, or at such times as the Executive and the Company
shall agree upon, at the rate of $275,000 per annum during the
Term of this Agreement, or at such increased rate as the Board,
with the advice of the Compensation Committee, may from time to
time determine.
(b) In addition to the salary to be paid pursuant to
Section 3 (a) , the Executive shall be eligible to participate
in the Company's Bonus Incentive Plan (the "Bonus Plan") or any
successor plan thereto, pursuant to the terms of such Bonus
Plan.
(c) The Executive shall also be eligible for grants
of stock options to acquire shares of Common Stock of the
Company ("Options") pursuant to the Company's 1994 Stock
Incentive Plan (the "Plan"), or any successor plan thereto,
pursuant to the terms of the Plan.
4. Additional Compensation; Benefits: The Board of
Directors of the Company, in its sole and absolute discretion,
may at any time and from time to time pay to the Executive such
additional incentive payments, bonuses and/or profit sharing
distributions, in addition to the compensation provided in
Section 3, as the Board of Directors, with the advice of the
Compensation Committee, may determine. The stock option and
compensation committee of the Company in its sole and absolute
discretion may at any time and from time to time award to the
Executive such stock options or other stock based pay under the
Company's stock option plan or otherwise, in addition to the
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compensation provided for in Section 3, as such committee or
board may from time to time determine.
The Executive shall, in any event, be entitled to
the continuation of any employee benefits, including life,
disability or accident insurance coverage, currently being
received by the Executive, and shall be eligible to
participate in any plan of the Company available to the
employees of the Company and any other plan which may be
adopted in the future with respect to employees or executives
of the Company or any of its operating divisions if he shall
be eligible under the terms of such plan without restriction
or limitation by reason of this Agreement.
The Executive shall also be entitled to paid
vacation for such periods and times as have been heretofore
customary for the Executive.
5. Expenses: the Company shall promptly reimburse
the Executive for all specified items of travel, entertainment
and miscellaneous expenses reasonably incurred by him in
connection with the performance of his duties hereunder upon
presentation of vouchers therefor in accordance with normal
procedures and standards established by the Company for such
purposes. the Company shall also, at its own expense, provide
Executive with a new automobile of the Company's choice and
shall bear all expenses of maintaining and insuring such
automobile.
6. Nondisclosure; Noncompetition:
(a) Executive shall not, at any time during or
following expiration or termination of Executive's employment
(regardless of the reason therefor), directly or indirectly,
disclose to any person (except in the regular course of the
Company's business), or use in competition with the Company,
any of the Company's trade secrets or confidential
information.
(b) For a period of one (1) year following expiration
of his employment or termination of employment for any reason
other than (i) termination by the Company without cause, or (ii)
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termination by the Executive in accordance with Section 2(c)
hereof, the Executive shall not, without the Company's written
consent, (A) enter into the employ of or render any services to
any person, firm or corporation engaged in any "Competitive
Business" (as defined below); (3) engage in any Competitive
Business for his own account or (C) become interested in any
Competitive Business as an individual, partner, shareholder,
creditor, director, officer, principal, agent, employee,
consultant, advisor or in any other relationship or capacity.
As used herein, "Competitive Business" shall mean operating
stores for the retail sale of educationally oriented products
for children, including without limitation, toys, games, books,
video and audio tapes, computer software, crafts, and science
and construction merchandise. The geographic locations in which
this covenant shall be operative shall include a fifty (50) mile
radius of any Noodle Kidoodle store then operated by the
Company, or then planned by the Company to be opened within a
twelve month period.
7. Fees and Expenses: the Company shall pay all
legal fees and related expenses incurred by the Executive as a
result of (i) termination of his employment following a change
in control of the Company (including all such fees and expenses,
if any, incurred in contesting or disputing any such termination
or incurred by the Executive in seeking advice with respect to
tax matters relating thereto) or (ii) the Executive's seeking to
obtain or enforce any right or benefit provided by this
Agreement, if the Company shall have denied such right or
withheld such benefit, and if the Executive shall prevail in
obtaining or enforcing it.
8. Miscellaneous:
(a) the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of its business and/or assets, by
agreement in form and substance satisfactory to the Executive,
to expressly assume and agree to perform this Agreement in the
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same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
(b) This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts would
still be payable to him hereunder if he had continued to live,
all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee or other designee or, if there be
no such designee, to the Executive's estate.
(c) No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or
discharge is agreed to in writing signed by the Executive and
such officer as may be specifically designated by the Board of
Directors of the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement.
(d) The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of
the State of New York.
(e) In the event that any provision of this Agreement
is held to be invalid or unenforceable in any jurisdiction for
any reason unless narrowed by construction, this Agreement
shall, as to such jurisdiction, be construed as if such
invalid or unenforceable provision had been more narrowly
drawn so as not to be invalid or unenforceable; and such
provision, as to such jurisdiction, shall be ineffective to
the extent of such invalidity, prohibition or
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unenforceability, without invalidating the remaining
provisions of this Agreement or affecting the validity or
enforceability of such provisions in any other jurisdiction.
(f) The invalidity or unenforcibility of any
provision or provisions of this Agreement shall not affect
the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
(g) Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively
by arbitration in New York, New York in accordance with the
rules of the American Arbitration Association then in effect.
(h) The Executive or his estate or designee shall be
entitled to receive reasonable attorneys' fees, costs and
expenses incurred in enforcing the Executive's rights under
this Agreement..
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date and year first above written.
NOODLE KIDOODLE, INC.
By:/s/ Stanley Greenman
ATTEST: Name: Stanley Greenman
Title: Chairman and Chief
Executive Officer
By:/s/Kenneth S. Betuker
Name:Kenneth S. Betuker
Executive:
/s/ Stewart Katz
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