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 May 2, 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 May 29, 1998, there were 7,582,640 outstanding shares of
the issuer's common stock, par value $.001 per share (excluding
924,261 treasury shares).
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1. - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
May 2, 1998, May 3, 1997 and January 31, 1998 3
Condensed Consolidated Statements of Operations
Thirteen Weeks Ended May 2, 1998 and May 3, 1997 4
Condensed Consolidated Statements of Cash Flows
Thirteen Weeks Ended May 2, 1998 and May 3, 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 6. - Exhibits and Reports on Form 8K 10
SIGNATURES 11
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<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENT
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
<CAPTION>
May 2, May 3, January 31,
1998 1997 1998
(In thousands, except share data)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,836 $10,398 $11,099
Merchandise inventories 21,279 16,410 16,821
Prepaid expenses and other current assets 3,272 2,678 3,024
Total current assets 30,387 29,486 30,944
Property, plant and equipment - net 19,102 19,351 18,514
Other assets 30 74 23
Total Assets $49,519 $48,911 $49,481
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 20 $ 18 $ 20
Trade accounts payable 8,280 5,308 6,048
Accrued expenses and taxes 6,493 7,020 7,726
Net liabilities of discontinued operations 1,252 2,120 1,173
Total current liabilities 16,045 14,466 14,967
Long-term debt 729 749 733
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 43,076 43,063 43,063
Accumulated deficit (6,548) ( 5,584) (5,499)
36,537 37,488 37,573
Less treasury stock, at cost, 924,261
shares 3,792 3,792 3,792
Total stockholders' equity 32,745 33,696 33,781
Total Liabilities and Stockholders' Equity $49,519 $48,911 $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
May 2, May 3,
1998 1997
(In thousands, except per share data)
<S> <C> <C>
Net sales $18,045 $15,535
Costs and expenses:
Cost of product sold including
buying and warehousing costs 11,030 9,664
Selling and administrative expenses 8,150 7,974
19,180 17,638
Operating loss (1,135) (2,103)
Interest income 109 123
Interest expense (23) (23)
Loss before income tax (1,049) (2,003)
Income taxes (benefit) - -
Net loss $(1,049) $(2,003)
Basic and diluted loss per share $ (.14) $ (.26)
Weighted average shares outstanding 7,580 7,580
See accompanying notes to Condensed Consolidated Financial Statements
</TABLE>
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<TABLE>
NOODLE KIDODOLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDTED STATEMENTS OF CASH FLOWS
UNAUDITED
<CAPTION>
Thirteen Weeks Ended
May 2 May 3
1998 1997
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss from operations $(1,049) $(2,003)
Adjustments to reconcile to net cash provided
(used):
Depreciation 647 572
Decrease (increase) in non-cash working capital
accounts:
Merchandise inventories (4,458) 908
Prepaid expenses, taxes and other current assets (248) 74
Trade accounts payable, accrued expenses and taxes 999 187
Net cash (used in) continuing operations (4,109) (262)
Decrease (increase) in non-cash working capital
accounts and other of discontinued operations 79 (305)
Net cash provided by (used in) discontinued
operations 79 (305)
Net cash (used in)operating activities (4,030) (567)
Cash flows from investing activities:
Property additions (1,235) (344)
Other (7) (20)
Net cash (used in)investing activities (1,242) (364)
Cash flows from financing activities:
Proceeds from exercise of employee stock options 13 -
Reduction of long-term debt (4) (4)
Net cash provided by (used in) financing
activities 9 (4)
Net increase (decrease) in cash and cash equivalents (5,263) (935)
Cash and cash equivalents - beginning of period 11,099 11,333
Cash and cash equivalents - end of period $ 5,836 $10,398
Supplemental cash flow information
Interest expense $ 23 $ 23
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 loss for the periods ended
May 2, 1998 and May 3, 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 earnings per share were
7,670,000 and 7,580,000 shares for the quarters
ended May 2, 1998 and May 3, 1997, respectively, as
a result of applying the treasury stock method to
outstanding employee stock options. In accordance
with FAS 128, as a result of losses from 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended May 2, 1998 Compared With
Thirteen Weeks Ended May 3, 1997
Results of Operations
Net sales increased a total of 16.1% to $18.0 million in the
thirteen week period ended May 2, 1998 from $15.5 million in
the comparable period in the prior year. Sales in Noodle
Kidoodle stores increased 16.1% to $18.0 million in the
current first quarter from $15.5 million in the comparable
period in the prior year, primarily due to increases in
comparable store sales of 16%, the addition of one store in
the current quarter and the addition of one store early in
the first quarter of last year. The Company had 31
comparable stores at May 2, 1998. One Playworld retail store
had sales of $36,000 in the thirteen week period ended May 3,
1997. That store was closed on October 31, 1997. The
Company operated 33 Noodle Kidoodle stores at May 2, 1998
compared to 32 Noodle Kidoodle stores and one Playworld store
at May 3, 1997.
Gross profit (derived from net sales less the cost of product
sold, which includes buying and warehousing costs) increased
18.6% to $7.0 million in the first quarter ended May 2, 1998
from $5.9 million in the comparable period in the prior year.
Gross profit, as a percentage of net sales ("gross profit
percentage") increased to 38.9% for the thirteen week period
ended May 2, 1998 from 37.8% in the comparable period in the
prior year, primarily due to lower merchandise costs of 1.3%,
decreased buying costs (including the salaries and related
expenses of the Company's buyers) offset by higher variable
warehousing costs.
Selling and administrative expenses increased $.2 million to
$8.2 million in the thirteen week period ended May 2, 1998
from $8.0 million in the comparable period in the prior year.
This increase resulted from higher direct store expenses of
$.2 million, which consist of payroll, advertising and other
store operating costs, as a result of changes in store base
and higher sales levels, and increases in home office
expenses of $.1 million offset by reductions in pre-opening
expenses of $.1 million. Selling and administrative
expenses, as a percent of net sales, decreased to 45.2% in
the current quarter ended May 2, 1998 from 51.3% in the
comparable period 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 decreased 50.0% to $1.0 million ($.14 per share) for
the quarter ended May 2, 1998 from $2.0 million ($.26 per
share) in the comparable period in the prior year. The net
loss for both periods ended May 2, 1998 and May 3, 1997 did
not include tax benefits.
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Liquidity and Capital Resources.
During the thirteen week period ended May 2, 1998 the
Company's operating activities of its continuing operations
used $4.1 million of cash. This use of cash resulted from
the net loss of $1.0 million, and an increase in working
capital of $3.7 million offset by non-cash charges of $.6
million. The increase in working capital resulted primarily
from increased inventory levels of $4.5 million needed for
the Company's planned store expansions in the second quarter.
The net liabilities of discontinued operations increased $.1
million. The Company also used cash to fund investing
activities of $1.2 million primarily for the purchase of
fixed assets for new stores. As a result of the foregoing,
cash and cash equivalents decreased during the period by $5.3
million.
The Company opened one store during the three months ended
May 2, 1998 and expects to open five 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 May
2, 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 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)
(b) Reports on Form 8-K.
On May 15, 1998, Noodle Kidoodle, Inc. filed
report on Form 8-K dated March 11, 1998 which
reported the following information under Items
5 and 7 of that form.
The Board of Directors of Noodle Kidoodle, Inc.
(the "Company") authorized the issuance of one
preferred share purchase right (a "Right") for
each outstanding share of common stock, par
value $.001 per share, of the Company. The
description and terms of the Rights are set
forth in the Rights Agreement, dated as of May
1, 1998 between Noodle Kidoodle, Inc. and Chase
Mellon Shareholders' Services, L.L.C. as Rights
Agent, together with Exhibits A and B attached
thereto.
The Board of Directors of the Company approved
an amendment to Article I, Section 3 of the
Amended and Restated Bylaws of the Company on
May 13, 1998.
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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: June 12, 1998 /s/ Stanley Greenman
Stanley Greenman, Chairman
of the Board, Chief
Executive Officer, and
Treasurer
(Principal Executive
Officer)
Date: June 12, 1998 /s/ Kenneth S. Betuker
Kenneth S. Betuker
Vice President, Chief
Financial Officer and
Secretary
(Principal Financial and
Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 5,836
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 21,279
<CURRENT-ASSETS> 30,387
<PP&E> 26,055
<DEPRECIATION> 6,953
<TOTAL-ASSETS> 49,519
<CURRENT-LIABILITIES> 16,045
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 32,736
<TOTAL-LIABILITY-AND-EQUITY> 49,519
<SALES> 18,045
<TOTAL-REVENUES> 18,045
<CGS> 11,030
<TOTAL-COSTS> 11,030
<OTHER-EXPENSES> 8,150
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> (1,049)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,049)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,049)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
