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 October 31, 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 December 7, 1998, there were 7,594,640 outstanding shares
of the issuer's common stock, par value $.001 per share
(excluding 912,261 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
October 31, 1998, November 1, 1997 and January 31, 1998 3
Condensed Consolidated Statements of Operations
Thirteen and Thirty-Nine Weeks Ended October 31, 1998
and November 1, 1997 4
Condensed Consolidated Statements of Cash Flows
Thirty-Nine Weeks Ended October 31, 1998 and November
1, 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 12
SIGNATURES 13
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENT
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
<CAPTION>
October 31, November 1 January 31,
1998 1997 1998
(In thousands, except share data)
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ASSETS
Current assets:
Cash and cash equivalents $ 54 $ 259 $11,099
Merchandise inventories 34,054 26,035 16,821
Prepaid expenses and other current assets 3,118 2,754 3,024
Total Current Assets 37,226 29,048 30,944
Property, plant and equipment - net 21,726 18,881 18,514
Other assets 38 89 23
Total Assets $58,990 $48,018 $49,481
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 20 $ 18 $ 20
Revolving credit facility 5,419 - -
Trade accounts payable 13,019 10,474 6,048
Accrued expenses and taxes 8,842 7,074 7,726
Net liabilities of discontinued operations 1,259 1,135 1,173
Total Current Liabilities 28,559 18,701 14,967
Long-term debt 719 739 733
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 (9,627) (10,702) (5,499)
33,465 32,370 37,573
Less treasury stock, at cost, 914,761,
924,261 and 924,261 shares, respectively 3,753 3,792 3,792
Total Stockholders' Equity 29,712 28,578 33,781
Total Liabilities and Stockholders' Equity $58,990 $48,018 $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 Thirty-Nine Weeks Ended
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
(In thousands, except per share data)
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Net sales $22,670 $15,641 $59,146 $44,830
Costs and expenses:
Cost of product sold including
buying and warehousing costs 13,816 9,699 35,935 27,902
Selling and administrative expenses 10,336 8,409 27,395 24,331
24,152 18,108 63,330 52,233
Operating loss (1,482) (2,467) (4,184) (7,403)
Interest income 12 90 184 350
Interest expense (84) (22) (128) (68)
Loss before income tax (1,554) (2,399) (4,128) (7,121)
Income taxes (benefit) - - - -
Net loss $(1,554) $(2,399) $(4,128) $(7,121)
Basic and diluted loss per share $ (0.20) $ (0.32) $ (0.54) $ (0.94)
Weighted average shares outstanding 7,592 7,580 7,586 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
Thirty-Nine Weeks Ended
October 31, November 1,
1998 1997
(In thousands)
<CAPTION>
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Cash flows from operating activities:
Net loss from operations $(4,128) $(7,121)
Adjustments to reconcile to net cash provided
(used):
Depreciation 2,086 1,847
Decrease (increase) in non-cash working capital
accounts:
Merchandise inventories (17,233) (8,717)
Prepaid expenses, taxes and other current assets (94) (2)
Trade accounts payable, accrued expenses and taxes 8,087 5,407
Net cash (used in) continuing operations (11,282) (8,586)
Decrease (increase) in non-cash working capital
accounts and other of discontinued operations 86 (1,290)
Net cash provided by (used in) discontinued
operations 86 (1,290)
Net cash (used in)operating activities (11,196) (9,876)
Cash flows from investing activities:
Property additions (5,298) (1,206)
Other (15) 22_
Net cash (used in)investing activities (5,313) (1,184)
Cash flows from financing activities:
Net increase in revolving credit facility 5,419 -
Proceeds from exercise of employee stock options 59 -
Reduction of long-term debt (14) (14)
Net cash provided by (used in) financing
activities 5,464 (14)
Net (decrease) in cash and cash equivalents (11,045) (11,074)
Cash and cash equivalents - beginning of period 11,099 11,333
Cash and cash equivalents - end of period $ 54 $ 259
Supplemental cash flow information
Interest expense $ 128 $ 68
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
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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 thirty-nine week periods ended October 31, 1998
and November 1, 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:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
7,660,700 7,585,100 7,676,600 7,583,800
In accordance with FAS 128, as a result of losses
from operations for the quarter and nine month
period ended October 31, 1998 and November 1, 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 October 31, 1998 Compared With
Thirteen Weeks Ended November 1, 1997
Results of Operations:
Net sales increased a total of 45.5% to $22.7 million in the
thirteen week period ended October 31, 1998 from $15.6
million in the comparable period in the prior year. Sales in
Noodle Kidoodle stores increased 46.5% to $22.7 million in
the third quarter from $15.5 million in the comparable period
in the prior year, primarily due to increases in comparable
store sales of 25% and the addition of two new stores in the
third quarter and seven new stores in the first half of
fiscal 1999. The Company had 32 comparable stores at October
31, 1998. One Playworld retail store had sales of $111,000
in the thirteen week period ended November 1, 1997. That
store was closed on October 31, 1997. The Company operated
39 Noodle Kidoodle stores at October 31, 1998 compared to 32
Noodle Kidoodle stores at November 1, 1997.
Gross profit (derived from net sales less the cost of product
sold, which includes buying and warehousing costs) increased
50.8% to $8.9 million in the thirteen week period ended
October 31, 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 39.1% for the
third quarter ended October 31, 1998 from 38.0% in the
comparable period in the prior year, primarily due to lower
merchandise costs and the additional sales leverage on buying
costs partially offset by higher variable warehousing costs.
Selling and administrative expenses increased $1.9 million to
$10.3 million in the thirteen week period ended October 31,
1998 from $8.4 million in the comparable period in the prior
year. This increase resulted from higher direct store
expenses (which consist of payroll, occupancy, advertising
and other store operating costs), of $1.5 million as a result
of changes in the store base and higher sales levels and an
increase in home office expenses of $.4 million. Selling and
administrative expenses, as a percent of net sales, decreased
to 45.6% in the current quarter ended October 31, 1998 from
53.8% 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 33.3% to $1.6 million ($0.20 per share)
for the thirteen week period ended October 31, 1998 from $2.4
million ($0.32 per share) in the comparable period in the
prior year. The net loss for both periods ended October 31,
1998 and November 1, 1997 did not include tax benefits.
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Thirty-Nine Weeks Ended October 31, 1998 Compared
with Thirty-Nine Weeks Ended November 1, 1997
Net sales increased a total of 31.9% to $59.1 million in the
thirty-nine week period ended October 31, 1998 from $44.8
million in the comparable period in the prior year. Sales in
Noodle Kidoodle stores increased 32.5% to $59.1 million in
the current nine month period from $44.6 million in the
comparable period in the prior year, primarily due to
increases in comparable store sales of 22%, the addition of
seven new stores in the current nine month period and one new
store in the first quarter of last year. The Company had 32
comparable stores at October 31, 1998. One Playworld retail
store had sales of 209,000 in the thirty-nine week period
ended October 31, 1997. The store was closed on October 31,
1997. The Company operated 39 Noodle Kidoodle stores at
October 31, 1998 compared to 32 Noodle Kidoodle stores at
October 31, 1997.
Gross profit (derived from net sales less the cost of product
sold, which includes buying and warehousing costs) increased
37.3% to $23.2 million in the thirty-nine week period ended
October 31, 1998 from $16.9 million in the comparable period
in the prior year. Gross profit percentage increased to
39.2% in the current nine-month period from 37.8% 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 $3.1 million to
$27.4 million in the thirty-nine week period ended October
31, 1998 from $24.3 million in the comparable period in the
prior year. These increases resulted from higher direct
store expenses (which consists of payroll, occupancy,
advertising and other store operating costs), of $2.8
million, as a result of changes in the store base and higher
sales levels, higher home-office expenses of $0.4 million,
offset by a reduction in pre-opening expenses of $0.1
million. Selling and administrative expenses, as a percent
of net sales, decreased to 46.3% in the current nine-month
period ended October 31, 1998 from 54.3% 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 42.3% to $4.1 million ($0.54 per share)
for the thirty-nine week period ended October 31, 1998 from
$7.1 million ($0.94 per share) in the comparable period in
the prior year. The net loss for both periods ended October
31, 1998 and November 1, 1997 did not include tax benefits.
Liquidity and Capital Resources:
During the thirty-nine week period ended October 31, 1998 the
operating activities of the Company's continuing operations
used $11.3 million of cash. This use of cash resulted from
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the net loss of $4.1 million and an increase in working
capital of $9.2 million, offset by non-cash charges of $2.0
million. The increase in working capital resulted primarily
from the seasonal build up of inventory in preparation for
the upcoming holiday selling season, the addition of seven
new stores and inventories needed for the Company's planned
store expansions in the remainder of the year, offset by
increases in trade accounts payable, accrued expenses and
taxes. The net liabilities of discontinued operations
increased $.1 million. The Company used cash to fund
investing activities of $5.3 million, primarily for the
purchase of fixed assets for new stores. Cash provided from
financing activities was $5.5 million, primarily from
borrowings of $5.4 million under the Company's revolving
credit facility. As a result of the foregoing, cash and cash
equivalents decreased during the period by $11.0 million.
The Company opened seven new stores during the nine months
ended October 31, 1998 and expects to open three additional
stores in November of fiscal 1999. In addition, the Company
plans to continue to make investments in its distribution
center, its management information systems, 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
October 31, 1998, the Company had $5.4 million of outstanding
borrowings 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.
Year 2000 Disclosure:
Management has completed its review of year 2000 issues and
does not believe that the business impact or cost of these
issues is material. The following areas have been reviewed:
Corporate Information Systems: All corporate information
systems, both those developed by the Company and critical
systems developed by third parties, have been developed in an
environment and programming language which are not affected
by the year 2000 problem, and no software changes are needed.
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In-Store Systems: All in-store and point of sale (POS)
software was developed by an outside software firm which has
provided written assurance of the systems' year 2000
compliance. The company has prepared a test plan to verify
the vendor's claims, which will be carried out by Noodle
Kidoodle staff during the first quarter of calendar 1999.
Personal Computers: Some personal computers used to run the
company's in-store POS systems are not year 2000 compliant.
BIOS upgrades are available for these computers and are being
obtained at little or no cost.
Embedded Systems: None of the company's critical operations
are dependent on embedded systems. Year 2000 compliance of
telephone and alarm systems, which may contain embedded date-
sensitive circuits, will be verified with their respective
vendors by the end of the first quarter of calendar 1999.
Risk: Management believes that the risks associated with the
year 2000 problem are minimal. The greatest risk to the
business is the possibility of an interruption in service
from a vendor who is not properly prepared. Any impact to
the business in this "worst case" scenario would be minimized
by the likelihood that it will occur during the traditionally
slower first quarter.
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 September 11, 1998, Noodle Kidoodle, Inc. filed a
report on Form 8-K dated August 31, 1998 which reported
the following information under Items 5 and 7 of that
form.
The Board of Directors of the Noodle Kidoodle, Inc.
(the "Company") approved an amendment to Article II,
Section 3 of the Amended and Restate Bylaws of the
Company on August 31, 1998. The amendment provides
that a stockholder desiring to nominate one or more
candidates for election to the Board of Directors so
notify the Company not less than 100 days nor more than
120 days prior to the anniversary date of the previous
year's Annual Meeting (the "Anniversary Date"), or if
the Annual Meeting is scheduled to be held on a date
more than 30 days before the Anniversary Date or more
than 60 days after the Anniversary Date, not later that
the close of business on the later of: (i) the 100th day
prior to the scheduled date of such Annual Meeting; or
(ii) the 15th day following the day on which public
announcement of the date of such Annual Meeting is
first made by the Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
NOODLE KIDOODLE, INC.
(Registrant)
Date: December 14, 1998 /s/ Stanley Greenman
Stanley Greenman, Chairman
of the Board, Chief
Executive Officer, and
Treasurer
(Principal Executive
Officer)
Date: December 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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<PERIOD-START> FEB-01-1998
<PERIOD-END> OCT-31-1998
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