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 1, 1999
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 18, 1999, there were 7,603,240 outstanding shares of
the issuer's common stock, par value $.001 per share (excluding
903,661 treasury shares).
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
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Item 1. - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
May 1, 1999, May 2, 1998 and January 30, 1999 3
Condensed Consolidated Statements of Operations
Thirteen Weeks Ended May 1, 1999 and May 2, 1998 4
Condensed Consolidated Statements of Cash Flows
Thirteen Weeks Ended May 1, 1999 and May 2, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. - Quantitative and Qualitative Disclosures About 10
Market Risk
PART II - OTHER INFORMATION None
SIGNATURES 11
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENT
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
May 1, May 2, January 30,
1999 1998 1999
(In thousands, except share data)
<CAPTION>
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,792 $ 5,836 $10,188
Merchandise inventories 25,901 21,279 21,074
Prepaid expenses and other current assets 1,850 3,272 3,780
Total current assets 32,543 30,387 35,042
Property, plant and equipment - net 23,327 19,102 22,900
Other assets 27 30 20
Total Assets $55,897 $49,519 $57,962
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 21 $ 20 $ 21
Trade accounts payable 11,237 8,280 8,576
Accrued expenses and taxes 6,319 6,493 9,738
Net liabilities of discontinued operations 1,333 1,252 1,303
Total current liabilities 18,910 16,045 19,638
Long-term debt 702 729 712
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
shares, respectively 9 9 9
Capital in excess of par value 43,098 43,076 43,087
Accumulated deficit (3,115) ( 6,548) (1,747)
39,992 36,537 41,349
Less treasury stock, at cost, 903,661,
924,261 and 910,861 shares, respectively 3,707 3,792 3,737
Total stockholders' equity 36,285 32,745 37,612
Total Liabilities and Stockholders' Equity $55,897 $49,519 $57,962
See accompanying notes to Condensed Consolidated Financial Statements.
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NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
Thirteen Weeks Ended
May 1, May 2,
1999 1998
(In thousands, except per share data)
<CAPTION>
<S> <C> <C>
Net sales $22,890 $18,045
Costs and expenses:
Cost of product sold including
buying and warehousing costs 13,900 11,030
Selling and administrative expenses 10,103 8,150
24,003 19,180
Operating loss (1,113) (1,135)
Interest income 80 109
Interest expense (21) (23)
Loss before income tax and cumulative
effect of a change in accounting
principle (1,054) (1,049)
Income taxes (benefit) - -_
Loss before cumulative effect of a
change in accounting principle (1,054) -
Cumulative effect of a change in accounting
principle 314 -
Net loss $(1,368) $(1,049)
Net loss per share basic and diluted:
Before cumulative effect of a change
in accounting principle $ (0.14) $ (0.14)
Cumulative effect of a change in
accounting principle (0.04) -
Net loss per share $ (0.18) $ (0.14)
Weighted average shares outstanding 7,599 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
Thirteen Weeks Ended
May 1, May 2,
1999 1998
(In thousands)
<CAPTION>
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Cash flows from operating activities:
Net loss before cumulative effect of a change
in accounting principle $(1,054) $(1,049)
Adjustments to reconcile to net cash provided
(used):
Depreciation 817 647
Decrease (increase) in non-cash working capital
accounts:
Merchandise inventories (4,827) (4,458)
Prepaid expenses, taxes and other current assets 1,616 (248)
Trade accounts payable, accrued expenses and taxes (758) 999
Net cash (used in) continuing operations (4,206) (4,109)
Decrease (increase) in non-cash working capital
accounts and other of discontinued operations 30 79
Net cash provided by (used in) discontinued
operations 30 79
Net cash (used in)operating activities (4,176) (4,030)
Cash flows from investing activities:
Property additions (1,244) (1,235)
Other (7) (7)
Net cash (used in)investing activities (1,251) (1,242)
Cash flows from financing activities:
Proceeds from exercise of employee stock options 41 13
Reduction of long-term debt (10) (4)
Net cash provided by (used in) financing
activities 31 9
Net increase (decrease) in cash and cash equivalents (5,396) (5,263)
Cash and cash equivalents - beginning of period 10,188 11,099
Cash and cash equivalents - end of period $ 4,792 $ 5,836
Supplemental cash flow information
Interest expense $ 21 $ 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
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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 30, 1999.
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 Company did not record a
tax benefit for the losses for the periods ended May
1, 1999 and May 2, 1998, respectively, since the
Company has no available tax loss carrybacks and
there are no available tax planning strategies that
would enable the Company to utilize the tax benefit
of the carryforwards, without relying on future
income.
The Company has recorded a 100% valuation allowance
against its deferred tax assets, and management
believes that it is premature to reverse the
allowance at this time.
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The Company has available net operating loss
carryforwards of approximately $16.5 million for
income tax purposes.
NOTE 4. Earnings per share.
The Company calculates earnings per share in
accordance with Statement of Financial Accounting
Standard (SFAS) No. 128, "Earnings per Share." We
use the weighted-average number of common shares
outstanding during each period to compute basic
earnings per common share. Diluted earnings per
share is computed using the weighted-average number
of common shares and dilutive potential common
shares outstanding. Dilutive potential common
shares are additional common shares assumed to be
exercised.
Average common and common equivalent shares
used in computing diluted earnings per share were
7,852,000 and 7,670,000 shares for the quarters
ended May 1, 1999 and May 2, 1998, 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.
Note 5. Accounting change.
Effective January 31, 1999, the Company adopted
Statement of Position ("SOP") 98-5, "Reporting on
the Costs of Start-Up Activities". The change
involves expensing store pre-opening costs as
incurred. Previously, the Company capitalized such
costs and amortized them over the first twelve
months of a store's operations.
The cumulative effect of the change in accounting
principle resulted in the write-off of $314,000 of
unamortized costs in the current quarter which is
so reflected in the Statement of Operations.
Note 6. Revenue Recognition.
Revenue is recognized at the time that retail sales
are made to customers. Returns and allowances are
recorded at the time returns are received from or
allowances made to customers.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended May 1, 1999 Compared With
Thirteen Weeks Ended May 2, 1998
Results of Operations
Net sales increased 27.2% to $22.9 million in the thirteen
week period ended May 1, 1999 from $18.0 million in the
comparable period in the prior year, primarily due to the
addition of two stores in the current quarter, one store in
the first quarter of last year, four stores in the second
quarter of last year, two stores in the third quarter of last
year and three stores in the fourth quarter of last year and
increases in comparable store sales of 4%. The Company had
32 comparable stores at May 1, 1999. The Company operated 44
Noodle Kidoodle stores at May 1, 1999 compared to 33 Noodle
Kidoodle stores at May 2, 1998.
Gross profit (derived from net sales less cost of products
sold, which includes buying and warehousing costs) increased
28.6% to $9.0 million in the first quarter ended May 1, 1999
from $7.0 million in the comparable period in the prior year.
Gross profit, as a percentage of net sales ("gross profit
percentage") increased to 39.3% for the thirteen week period
ended May 1, 1999 from 38.9% in the comparable period in the
prior year, primarily due to favorable product mix and the
leveraging of buying and fixed warehousing costs over a
larger sales base, offset by slightly higher variable
warehousing costs.
Selling and administrative expenses increased $1.9 million to
$10.1 million in the thirteen week period ended May 1, 1999
from $8.2 million in the comparable period in the prior year.
Direct store expenses, which consist of payroll, occupancy,
advertising and other store operating costs, increased $1.9
million as a result of a change in store base and higher
sales levels. Home office expenses decreased $.1 million,
offset by an increase in pre-opening expenses of $.1 million.
Selling and administrative expenses, as a percent of net
sales, decreased to 44.1% in the current quarter ended May 1,
1999 from 45.2% in the comparable period in the prior year,
primarily as a result of sales leveraging against the fixed
portion of these costs.
Income tax provisions are based on estimated annual effective
tax rates. The Company did not record a tax benefit for the
losses for the periods ended May 1, 1999 and May 2, 1998,
respectively, since the Company has no available tax losses
carrybacks and there are no available tax planning strategies
that would enable the Company to utilize the tax benefit of
the carryforwards, without relying on future income. The
Company has recorded a 100% valuation allowance against
its deferred tax assets, and management believes that it is
premature to reverse the allowance at this time.
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The cumulative effect of a change in accounting principle of
$314,000 represents the write-off of unamortized pre-opening
costs as a result of adopting SOP 98-5, "Reporting on the
Costs of Start-Up Activities", in the current quarter. This
accounting change requires the Company to expense on a
current basis previously capitalized pre-opening costs.
Net loss increased $.4 million to $1.4 million ($.18 per
share) for the quarter ended May 1, 1999 from $1.0 million
($.14 per share) in the comparable period in the prior year,
primarily as a result of the cumulative effect of a change in
accounting principle, of $.3 million ($.04 per share).
Liquidity and Capital Resources.
During the thirteen week period ended May 1, 1999 the
Company's operating activities of its continuing operations
used $4.2 million of cash. This use of cash resulted from
the net loss before the cumulative effect of a change in
accounting principle of $1.1 million, and an increase in
working capital of $3.9 million, offset by non-cash charges
of $.8 million. The increase in working capital resulted
primarily from an increased store base and the need for
inventories for the Company's planned store openings in the
second quarter. 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 $5.4
million.
The Company maintains a revolving credit facility, effective
through June 2000, with The CIT Group/Business Credit, Inc.,
which provides up to $20 million of available borrowings.
This facility may be used for direct borrowings and letters
of credit and may not exceed a certain percentage of, and is
collateralized by, the Company's inventory, receivables and
certain other assets. The agreement provides for an annual
collateral management fee and 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. As of
May 1, 1999, no borrowings were outstanding under the
revolving credit facility.
The Company opened two stores during the three months ended
May 1, 1999, one in Miami, FL and one in Houston, TX. A
third store was opened in Manhattan, NY on June 5, 1999 and
the Company expects to open between nine and twelve stores in
the next two quarters of fiscal 2000. 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
plans to lease a 65,000 square foot distribution facility in
the second half of fiscal 2000 to support its peak seasonal
inventory requirements as a result of the increased store
base. The Company expects to meet these cash requirements
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through a combination of available cash, operating cash flows
and borrowing from its existing revolving credit facility.
The Company has available net operating loss carryforwards of
approximately $16.5 million for income tax purposes.
The Company expects to fund its near-term cash requirements
principally from its existing cash balances and by borrowing
under 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.
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 the total year's revenues. Operations during
the first three quarters are not expected to be profitable
for the foreseeable future.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.
Not Applicable.
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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 14, 1999 /s/ Stanley Greenman
Stanley Greenman, Chairman
of the Board, Chief
Executive Officer, and
Treasurer
(Principal Executive
Officer)
Date: June 14, 1999 /s/ Kenneth S. Betuker
Kenneth S. Betuker
Vice President, Chief
Financial Officer and
Secretary
(Principal Financial and
Accounting Officer)
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-01-1999
<CASH> 4,792
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 25,901
<CURRENT-ASSETS> 32,543
<PP&E> 33,382
<DEPRECIATION> 10,055
<TOTAL-ASSETS> 55,897
<CURRENT-LIABILITIES> 18,910
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 36,276
<TOTAL-LIABILITY-AND-EQUITY> 55,897
<SALES> 22,890
<TOTAL-REVENUES> 22,890
<CGS> 13,900
<TOTAL-COSTS> 13,900
<OTHER-EXPENSES> 10,103
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> (1,054)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,054)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 314
<NET-INCOME> (1,368)
<EPS-BASIC> (0.18)
<EPS-DILUTED> (0.18)
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