SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 1, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period from __________________ to _________________
Commission file number 1-6083
NOODLE KIDOODLE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-1771705
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification
Number)
6801 JERICHO TURNPIKE, SYOSSET, NEW YORK 11791
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code (516) 677-0500
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter periods that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirement for the past 90 days. YES X No ___
As of September 2, 1998, there were 7,592,140 outstanding shares
of the issuer's common stock, par value $.001 per share
(excluding 914,761 treasury shares).
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TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
Page
Item 1. - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
August 1, 1998, August 2, 1997 and January 31, 1998 3
Condensed Consolidated Statements of Operations
Thirteen and Twenty-Six Weeks Ended August 1, 1998
and August 2, 1997 4
Condensed Consolidated Statements of Cash Flows
Twenty-Six Weeks Ended August 1, 1998 and August 2, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 4. - Submissions of Matters to a Vote of Security 11
Holders
Item 6. - Exhibits and Reports on Form 8K 11
SIGNATURES 12
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENT
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
<CAPTION>
August 1, August 2, January 31,
1998 1997 1998
(In thousands, except share data)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,247 $ 5,946 $11,099
Merchandise inventories 21,769 17,681 16,821
Prepaid expenses and other current assets 3,345 3,140 3,024
Total Current Assets 26,361 26,767 30,944
Property, plant and equipment - net 20,449 18,851 18,514
Other assets 32 93 23
Total Assets $46,842 $45,711 $49,481
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 20 $ 18 $ 20
Trade accounts payable 6,245 5,752 6,048
Accrued expenses and taxes 7,324 6,371 7,726
Net liabilities of discontinued operations 1,263 1,849 1,173
Total Current Liabilities 14,852 13,990 14,967
Long-term debt 724 744 733
Commitments and contingencies - - -
Stockholders' equity:
Preferred stock-authorized 1,000,000
shares, par value $.001,(none issued) - - -
Common stock-authorized 15,000,000,
par value $.001, issued 8,506,901
8,503,901 and 8,503,901 shares,
respectively 9 9 9
Capital in excess of par value 43,083 43,063 43,063
Accumulated deficit (8,073) ( 8,303) (5,499)
35,019 34,769 37,573
Less treasury stock, at cost, 914,761
shares 3,753 3,792 3,792
Total Stockholders' Equity 31,266 30,977 33,781
Total Liabilities and Stockholders' Equity $46,842 $45,711 $49,481
See accompanying notes to Condensed Consolidated Financial Statements.
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NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $18,431 $13,654 $36,476 $29,189
Costs and expenses:
Cost of product sold including
buying and warehousing costs 11,089 8,539 22,119 18,203
Selling and administrative expenses 8,909 7,948 17,059 15,922
19,998 16,487 39,178 34,125
Operating loss (1,567) (2,833) (2,702) (4,936)
Interest income 63 137 172 260
Interest expense (21) (23) (44) (46)
Loss before income tax (1,525) (2,719) (2,574) (4,722)
Income taxes (benefit) - - - -
Net loss $(1,525) $(2,719) $(2,574) $(4,722)
Basic and diluted loss per share $ (0.20) $ (0.36) $ (0.34) $ (0.62)
Weighted average shares outstanding 7,587 7,580 7,583 7,580
See accompanying notes to Condensed Consolidated Financial Statements
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NOODLE KIDODOLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDTED STATEMENTS OF CASH FLOWS
UNAUDITED
<CAPTION>
Twenty-Six Weeks Ended
August 1, August 2,
1998 1997
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss from operations $(2,574) $(4,722)
Adjustments to reconcile to net cash provided
(used):
Depreciation 1,346 1,207
Decrease (increase) in non-cash working capital
accounts:
Merchandise inventories (4,948) (363)
Prepaid expenses, taxes and other current assets (321) (388)
Trade accounts payable, accrued expenses and taxes (205) (18)
Net cash (used in) continuing operations (6,702) (4,284)
Decrease (increase) in non-cash working capital
accounts and other of discontinued operations 90 (576)
Net cash provided by (used in) discontinued
operations 90 (576)
Net cash (used in)operating activities (6,612) (4,860)
Cash flows from investing activities:
Property additions (3,281) (479)
Other (9) (39)
Net cash (used in)investing activities (3,290) (518)
Cash flows from financing activities:
Proceeds from exercise of employee stock options 59 -
Reduction of long-term debt (9) (9)
Net cash provided by (used in) financing
activities 50 (9)
Net increase (decrease) in cash and cash equivalents (9,852) (5,387)
Cash and cash equivalents - beginning of period 11,099 11,333
Cash and cash equivalents - end of period $ 1,247 $ 5,946
Supplemental cash flow information
Interest expense $ 44 $ 46
Income taxes, net - -
See accompanying notes to Condensed Consolidated Financial Statements
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NOODLE KIDOODLE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1. Basis of presentation.
The accompanying interim unaudited consolidated
financial statements include the accounts of Noodle
Kidoodle, Inc. and subsidiaries (the "Company").
All intercompany accounts and transactions are
eliminated in consolidation.
These financial statements have been prepared in
accordance with generally accepted accounting
principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by
generally accepted accounting principles for
complete financial statements. In the opinion of
management, such interim statements reflect all
adjustments (consisting of normal recurring
accruals) necessary to present fairly the financial
position and the results of operations and cash
flows for the interim periods presented. Due to the
seasonal nature of the Company's business, results
of operations for the interim periods are not
necessarily indicative of the results to be expected
for the full fiscal year. These financial
statements should be read in conjunction with the
audited consolidated financial statements and
footnotes included in the Company's annual Report on
Form 10-K for the year ended January 31, 1998.
NOTE 2. Cash and cash equivalents.
All highly liquid investments with a maturity date
of three months or less are considered to be cash
equivalents. These investments are stated at cost
which approximates market.
NOTE 3. Income taxes.
Income tax provisions are based on estimated annual
effective tax rates. The losses for the thirteen
and twenty-six week periods ended August 1, 1998 and
August 2, 1997 provided no tax benefit.
NOTE 4. Earnings per share.
For the fiscal year ended January 31, 1998, the
Company adopted Statement of Accounting Standards
No. 128 ("FAS 128") which requires the presentation
of basic and diluted earnings per share, which
replaces primary and fully diluted earnings per
share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effect of
employee stock options. Diluted earnings per share
is very similar to the previously reported fully
diluted earnings per share. Earnings per share have
been restated for all periods presented to reflect
the adoption of FAS 128.
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Average common and common equivalent shares used in
computing diluted earning per share as a result of
applying the treasury stock method to outstanding
employee stock options were as follows:
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<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
7,697,400 7,586,500 7,683,000 7,583,200
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In accordance with FAS 128, as a result of losses
from operations for the quarter and six month period
ended August 1, 1998 and August 2, 1997, 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended August 1, 1998 Compared With
Thirteen Weeks Ended August 2, 1997
Results of Operations
Net sales increased a total of 34.3% to $18.4 million in the
thirteen week period ended August 1, 1998 from $13.7 million
in the comparable period in the prior year. Sales in Noodle
Kidoodle stores increased 35.3% to $18.4 million in the
second quarter from $13.6 million in the comparable period in
the prior year, primarily due to increases in comparable
store sales of 25% and the addition of four new stores in the
second quarter and one new store in the first quarter of
fiscal 1999. The Company had 32 comparable stores at August
1, 1998. One Playworld retail store had sales of $62,000 in
the thirteen week period ended August 2, 1997. That store
was closed on October 31, 1997. The Company operated 37
Noodle Kidoodle stores at August 1, 1998 compared to 32
Noodle Kidoodle stores and one Playworld store at August 2,
1997.
Gross profit (derived from net sales less the cost of product
sold, which includes buying and warehousing costs) increased
43.1% to $7.3 million in the thirteen week period ended
August 1, 1998 from $5.1 million in the comparable period in
the prior year. Gross profit, as a percentage of net sales
("gross profit percentage") increased to 39.8% for the second
quarter ended August 1, 1998 from 37.5% in the comparable
period in the prior year, primarily due to lower merchandise
costs and markdowns and the additional sales leverage on
buying and warehousing costs.
Selling and administrative expenses increased $1.0 million to
$8.9 million in the thirteen week period ended August 1, 1998
from $7.9 million in the comparable period in the prior year.
This increase resulted from higher direct store expenses of
$1.1 million, which consist of payroll, advertising and other
store operating costs, as a result of changes in the store
base and higher sales levels, offset by decreases in the home
office and pre-opening expenses of $.1 million each. Selling
and administrative expenses, as a percent of net sales,
decreased to 48.3% in the current quarter ended August 1,
1998 from 58.2% in the comparable period in the prior year,
primarily as a result of sales leverage against selling and
administrative expenses which did not rise commensurately
with increased sales levels.
Net loss decreased 44.4% to $1.5 million ($0.20 per share)
for the thirteen week period ended August 1, 1998 from $2.7
million ($0.36 per share) in the comparable period in the
prior year. The net loss for both periods ended August 1,
1998 and August 2, 1997 did not include tax benefits.
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Twenty-Six Weeks Ended August 1, 1998 Compared
with Twenty-Six Weeks Ended August 2, 1997
Net sales increased a total of 25.0% to $36.5 million in the
twenty-six week period ended August 1,1998 from $29.2 million
in the comparable period in the prior year. Sales in Noodle
Kidoodle stores increased 25.4% to $36.5 million in the
current six month period from $29.1 million in the comparable
period in the prior year, primarily due to increases in
comparable store sales of 20%, the addition of five new
stores in the current six month period and one new store in
the first quarter of last year. The Company had 32
comparable stores at August 1, 1998. One Playworld retail
store had sales of $98,000 in the twenty-six week period
ended August 2, 1997. The store was closed on October 31,
1997. The Company operated 37 Noodle Kidoodle stores at
August 1, 1998 compared to 32 Noodle Kidoodle stores and one
Playworld store at August 2, 1997.
Gross profit (derived from net sales less the cost of product
sold, which includes buying and warehousing costs) increased
30.9% to $14.4 million in the twenty-six week period ended
August 1, 1998 from $11.0 million in the comparable period in
the prior year. Gross profit percentage increased to 39.4%
in the current six-month period from 37.6% in the comparable
period in the prior year, primarily due to lower merchandise
costs and markdowns and decreased buying costs (including the
salaries and related expenses of the Company's buyers),
partially offset by higher variable warehousing costs.
Selling and administrative expenses increased $1.1 million to
$17.0 million in the twenty-six week period ended August 1,
1998 from $15.9 million in the comparable period in the prior
year. These increases resulted from higher direct store
expenses of $1.3 million, which consists of payroll,
advertising and other store operating costs, as a result of
changes in the store base and higher sales levels, offset by
a reduction in pre-opening expenses of $0.2 million. Selling
and administrative expenses, as a percent of net sales,
decreased to 46.8% in the current six-month period ended
August 1, 1998 from 54.5% in the comparable period in the
prior year, primarily as a result of sales leverage against
selling and administrative expenses which did not rise
commensurately with increases sales levels.
Net loss decreased 44.7% to $2.6 million ($0.34 per share)
for the twenty-six week period ended August 1, 1998 from $4.7
million ($0.62 per share) in the comparable period in the
prior year. The net loss for both periods ended August 1,
1998 and August 2, 1997 did not include tax benefits.
Liquidity and Capital Resources.
During the twenty-six week period ended August 1, 1998 the
Company's operating activities of its continuing operations
used $6.7 million of cash. This use of cash resulted from
the net loss of $2.6 million and an increase in working
capital of $5.4 million offset by non-cash charges of $1.3
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million. The increase in working capital results primarily
from increased inventory levels of $4.9 million as a result
of the addition of five new stores and inventories needed for
the Company's planned store expansions in the remainder of
the year. The net liabilities of discontinued operations
increased $.1 million. The Company also used cash to fund
investing activities of $3.3 million primarily for the
purchase of fixed assets for new stores. As a result of the
foregoing, cash and cash equivalents decreased during the
period by $9.9 million.
The Company opened five new stores during the six months
ended August 1, 1998 and expects to open at least four
additional stores in the next two quarters of fiscal 1999.
In addition, the Company plans to continue to make
investments in its distribution center and for store remodels
to improve operational efficiencies and customer service.
The Company expects to meet these cash requirements through a
combination of available cash and borrowings from its
existing revolving line of credit.
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. As of
August 1, 1998, no borrowings were outstanding under the
revolving credit facility.
The Company expects that its current cash and cash
equivalents and funds available under its revolving credit
facility will be sufficient to fund its planned store
openings and other recurring operational cash needs for the
near future. The Company is continually evaluating financing
possibilities for its long-term expansion, and it may seek
to raise additional funds through any one or a combination of
public or private debt or equity-related offerings, dependent
upon market conditions, or from borrowings under future
credit facilities.
The Company has available net operating loss carryfowards of
approximately $21.4 million for income tax purposes.
Seasonality
The Company's operations are highly seasonal and a
significant portion of its revenues occur in the 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 total year's revenues. Operations during the
first three quarters are not expected to be profitable for
the foreseeable future.
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PART II - OTHER INFORMATION
Item 4. - Submission of Matters to a Vote of Security
Holders.
(a) The Annual Meeting of Stockholders of Noodle
Kidoodle, Inc. was held on July 7, 1998 and
continued on August 6, 1998.
(b) Election of Directors
Nominees (Class I Directors) Shares For Shares Withheld
Lester Greenman 6,747,892 56,640
Melvin C. Redman 6,693,892 110,640
Barry W. Ridings 6,695,691 108,841
(c) Holders of common shares voted at the
continuation of the meeting on August 6, 1998
on the following matters, which were set forth
in the Registrant's Proxy Statement dated May
29, 1998.
Shares Shares Shares
(i) Directors Proposals For Against Abstain
That the Company Amend
its Certificate of In- 3,682,624 933,061 2,966,955
corporation and its (48.6%) (12.3%) (39.1%)
Amended and Restated
By-Laws to eliminate
Stockholder Action by
Written Consent. (*)
That the Company Amend 3,600,941 984,240 2,241,281
its 1994 Stock Incen- (52.8%) (14.4%) (32.8%)
tive Plan. (**)
(*) Percentages are based on total number of outstanding common
shares. Approval of this proposal required a majority of the
outstanding common shares.
(**) Percentages are based on total number of common shares present
at the meeting in person or by proxy. Approval of this proposal
required a majority of the common stock present at the meeting
in person or by proxy.
Item 6. - Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this report:
Exhibit 27 - Financial Data Schedule (SEC/EDGAR only)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
NOODLE KIDOODLE, INC.
(Registrant)
Date: September 14, 1998 /s/ Stanley Greenman
Stanley Greenman, Chairman
of the Board, Chief
Executive Officer, and
Treasurer
(Principal Executive
Officer)
Date: September 14, 1998 /s/ Kenneth S. Betuker
Kenneth S. Betuker
Vice President, Chief
Financial Officer and
Secretary
(Principal Financial and
Accounting Officer)
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<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> AUG-01-1998
<CASH> 1,247
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 21,769
<CURRENT-ASSETS> 26,361
<PP&E> 28,100
<DEPRECIATION> 7,651
<TOTAL-ASSETS> 46,842
<CURRENT-LIABILITIES> 14,852
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 31,257
<TOTAL-LIABILITY-AND-EQUITY> 46,842
<SALES> 36,476
<TOTAL-REVENUES> 36,476
<CGS> 22,119
<TOTAL-COSTS> 22,119
<OTHER-EXPENSES> 17,059
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> (2,574)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,574)
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<NET-INCOME> (2,574)
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