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 30, 1999
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. [ ]
-1-
<PAGE>
The aggregate market value of voting stock held by non-affiliates
of the registrant as of April 16, 1999 was $54,165,286 based on
the closing price of same stock on that date. In determining the
market value of non-affiliated voting stock, shares of common
stock beneficially owned by each executive officer and director
have been excluded. This determination of affiliate status in
not necessarily a conclusive determination for other purposes.
The number of shares of common stock outstanding as of April 16,
1999 was 7,601,365.
Documents Incorporated by reference: Certain portions of
Registrant's definitive proxy statement with respect to its 1999
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 30, 1999 are incorporated by reference
into Part III of this report.
-2-
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
PART I
<S> <C> <C>
Item 1. Business 4
Item 2. Properties 8
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 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of 12
Operations
Item 7A.Quantitative and Qualitative Disclosures About
Market Risk 17
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 17
PART III
Item 10. Directors and Executive Officers of
the Registrant 17
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial
Owners and Management 17
Item 13. Certain Relationships and Related
Transactions 17
PART IV
Item 14. Exhibits, Financial Statements,
Schedules and Reports on Form 8-K 18
-3-
<PAGE>
</TABLE>
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 42 Noodle Kidoodle stores at the close of
the fiscal year ended January 30, 1999 ("Fiscal 1999") located in
New York, New Jersey, Connecticut, Texas, Oklahoma, Florida and
the Boston, Chicago, and Detroit metropolitan areas.
(b) Financial Information About Industry Segments
Registrant currently operates in one 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 as
discontinued operations.
-4-
<PAGE>
(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
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 10,100 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 16,000
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 600 suppliers. There is currently only one supplier which
represents grater then 10% of the Company's total purchases.
Purchases from Ty, Inc., were approximately 11% of total
purchases in Fiscal 1999.
At the end of its 1999 fiscal year, the Company operated 42
Noodle Kidoodle stores located in New York, New Jersey,
Connecticut, Texas, Oklahoma, Florida and the Boston, Chicago and
Detroit metropolitan areas. It opened a total of ten new stores
in fiscal 1999, five stores in Texas, one in Oklahoma, one in
Florida, two in New York, and one in Michigan. The Company's new
store program for the coming year is well underway, with two
stores open and three stores under construction as of April 30,
1999. The Company plans to open between twelve and fifteen
stores in Fiscal 2000. The Company believes that there are
opportunities for nationwide expansion over the longer term.
-5-
<PAGE>
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.
* 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 30, 1999.
-6-
<PAGE>
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. The Company
also faces growing competition from internet-based retailers,
such as eToys and Amazon.com. Because internet-based retailers
do not operate retail stores, they may enjoy an overall operating
cost advantage. 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. In addition, due to the
nature of electronic commerce, they may reach a broader market.
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 30, 1999, the Company employed 1,210 people, of
whom 432 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.
-7-
<PAGE>
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 in enclosed shopping mall
locations. The 42 stores operating at the end of Fiscal 1999
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. The Farmingdale and West Haven
facilities were disposed of when the Company's wholesale
operations were discontinued. 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
does not believe that disposing of the Birmingham facility 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 five-year lease for its executive offices which
contains an option to renew for an additional five years.
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 5 (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.
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 1999 and for the fiscal year ended January
31, 1998 ("Fiscal 1998").
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal 1999
First Quarter $ 7.56 $ 3.75
Second Quarter 7.38 5.00
Third Quarter 6.13 3.13
Fourth Quarter 11.63 5.25
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
</TABLE>
As of January 30, 1999 there were approximately 598 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.
-9-
<PAGE>
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
30, 1999, January 31, 1998, February 1, 1997, fifty-three weeks
ended February 3, 1996, and the fifty-two weeks ended January 28,
1995, are derived from the consolidated financial statements of
the Company which have been audited by Janover Rubinroit, LLC,
independent certified public accountants.
-9-
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
Fiscal Years Ended
Jan. 30, Jan. 31, Feb. 1, Feb. 3, Jan. 28,
1999 1998 1997 1996 1995
(52 Weeks) (52 weeks)(52 weeks)(53 weeks) (52 weeks)
(In thousands except share data)
<CAPTION>
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales $107,886 $81,664 $59,410 $32,143 $23,308
Net income (loss) from:
Continuing operations $ 3,752 $(1,918) $(7,492) $(5,272) $(4,490)
Discontinued operations - - - (9,059) 1,096
Net income (loss) $ 3,752 $(1,918) $(7,492) $(14,331) $(3,394)
Basic earnings per share
Continuing operations $ .49 $ (.25) $ (1.00) $ (.99) $ (.86)
Discontinued operations - - - (1.70) .21
Net income (loss) per share $ .49 $ (.25) $ (1.00) $ (2.69) $ (.65)
Diluted earnings per share
Continuing operations $ .49 $ (.25) $ (1.00) $ (.99) $ (.86)
Discontinued operations - - - (1.70) .21
Net income (loss) per share $ .49 $ (.25) $ (1.00) $ (2.69) $ (.65)
Weighted average shares:
Basic 7,588 7,580 7,488 5,320 5,220
Diluted 7,722 7,587 7,601 5,498 5,361
SELECTED OPERATING DATA (AT PERIOD END)
Stores open 42 32 31 22 8
BALANCE SHEET DATA:
Working capital $15,404 $15,977 $16,819 $14,031 $35,667
Total assets 57,962 49,481 51,036 37,276 48,042
Stockholders' equity 37,612 33,781 35,699 27,080 40,870
Long term obligations 712 733 753 - -
Dividends per common share - - - - -
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 in fiscal years 1998, 1997, 1996 and 1995,
respectively.
</TABLE>
-11-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Fiscal Year Ended January 30, 1999 compared to
Fiscal Year Ended January 31, 1998
Net sales increased a total of 32.1% to $107.9 million in Fiscal
1999 from $81.7 million in Fiscal 1998. Noodle Kidoodle sales
increased $26.4 million or 32.4% to $107.9 million in Fiscal 1999
from $81.5 million in the prior year, primarily due to increased
sales in comparable stores of 16%, the addition of ten new stores
during Fiscal 1999 and one new store during Fiscal 1998. Other
retail stores had $.2 million of sales in Fiscal 1998. The last
Playworld store was closed on October 31, 1997. The Company
operated 42 Noodle Kidoodle stores at January 30, 1999 compared
to 32 Noodle Kidoodle stores at January 31, 1998.
Gross profit (derived from net sales less cost of products sold,
which includes buying and warehousing costs) increased 35.8% to
$42.5 million for Fiscal 1999 from $31.3 million in Fiscal 1998.
Overall gross profit as a percent of sales ("gross profit
percentage") increased to 39.4% in Fiscal 1999 from 38.3% in
Fiscal 1998. The increase in gross profit percentage was
primarily attributable 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 $5.2 million or
15.5% to $38.8 million in Fiscal 1999 from $33.6 million in the
prior year. Direct store expenses which consist of payroll,
occupancy, advertising and other store operating expenses
increased $4.4 million, due to change in the store base and
higher sales levels. Home office expenses increased $.8 million.
Selling and administrative expenses as a percent of net sales
decreased to 36.0% in Fiscal 1999 from 41.1% in the prior year,
primarily as a result of sales leveraging against the fixed
portion of these costs.
Net income rose to $3.8 million ($.49 per share) in Fiscal 1999
from a net loss of $1.9 million ($.25 per share) in the prior
year. The net income in Fiscal 1999 did not include a tax
provision and the net loss in Fiscal 1998 did not include a tax
benefit. At January 30, 1999, the Company had approximately
$16.5 million of net operating loss carryforwards for tax
purposes.
-12-
<PAGE>
Fiscal Year Ended January 31, 1998 Compared to
Fiscal Year Ended February 1, 1997.
Net sales increased a total of 37.5% to $81.7 million in Fiscal
1998 from $59.4 million in fiscal year ended February 1, 1997,
("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 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 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, 1998, the Company had approximately
$21.4 million of net operating loss carryforwards for tax purposes.
-13-
<PAGE>
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, borrowings under its revolving
credit facility and internal cash balances. These cash
requirements principally have included financing operating
losses, working capital requirements and expenditures for new
store openings.
<TABLE>
Fiscal Years Ended
1999 1998 1997
(In thousands)
<CAPTION>
<S> <C> <C> <C>
Net cash provided by (used in)
Operating activities:
Continuing operations $ 6,215 $ 2,673 $(9,438)
Discontinued operations 130 (1,252) (1,585)
Investing activities (7,315) (1,637) (1,798)
Financing activities 59 (18) 16,882
Net increase (decrease) in cash
and cash equivalents (911) (234) 4,061
Cash and cash equivalents -
beginning of year 11,099 11,333 7,272
Cash and cash equivalents -
end of year $10,188 $11,099 $ 11,333
</TABLE>
During Fiscal 1999, the Company generated $6.2 million of cash
from operating activities, primarily from net income of $3.8
million and non-cash charges of $2.9 million, offset by increases
in working capital of $.5 million. The net increase in working
capital was attributable to higher inventory levels as a result
of opening ten new stores. The net liabilities of discontinued
operations increased $.1 million during the year. Net cash used
in investing activities was $7.3 million, primarily to purchase
fixed assets for new stores including $.7 million for stores
scheduled to open in Fiscal 2000. As a result of the foregoing,
cash and cash equivalents decreased during the year by $.9
million.
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.
-14-
<PAGE>
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.
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 January 30, 1999, no borrowings were
outstanding under the revolving credit facility.
The Company expects to open between twelve to fifteen stores
during Fiscal 2000. The Company anticipates that capital
expenditures in Fiscal 2000 will be approximately $7.3 million to
open new stores, remodel certain existing stores, and improve the
efficiency of its distribution center. The Company expects to
meet these cash requirements through a combination of available
cash, operating cash flows and borrowings 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.
-15-
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.
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.
Year 2000 Compliance:
The Company has completed its review of year 2000 ("Y2K") 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.
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 tested the systems' Y2K compliance during the first
quarter of calendar 1999 and found the systems to be Y2K
compliant.
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 half of calendar 1999.
Risk: There can be no assurance that the Company's systems will
be timely converted or that the failure of such systems to be
year 2000 compliant will not have a material adverse affect on
the Company's results of operations, financial condition or
liquidity. 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.
-16-
<PAGE>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOURES ABOUT MARKET
RISKS.
No response is required to this item.
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 1999
Annual Meeting of Stockholders (the "1999 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 1999 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 1999 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 1999
Proxy Statement.
-17-
<PAGE>
PART IV
<TABLE>
<CAPTION>
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS
ON FORM 8-K.
<S> <C>
(a) 1. Financial Statements Page
Independent auditor's report F-1
Consolidated balance sheets at January
30, 1999 and January 31, 1998 F-2
Consolidated statements of operations for
the years ended January 30, 1999,
January 31, 1998 and February 1, 1997 F-3
Consolidated statements of stockholders'
equity for the years ended January 30,
1999, January 31, 1998, and February 1,
1997 F-4
Consolidated statements of cash flows for
the years ended January 30, 1999, January
31, 1998,and February 1, 1997 F-5
Notes to consolidated financial statements F-6
2. Schedules
</TABLE>
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.
-18-
<PAGE>
3. Index to Exhibits
(a) The following documents are filed as Exhibits to this
document:
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
<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.)
-19-
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
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.)
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)
3.9 Amendment to Article I and II, Section 3 of the
Amended and Restate Bylaws of the Registrant
(Incorporated by reference to Registrant's
Report on Form 8-K dated March 11, 1998 and
August 31, 1998)
4.1 Rights Agreement, dated as of May 1, 1998,
between Registrant and Chase Mellon Shareholder
Services, L.L.C., as Rights Agent (Incorporated
by reference to Registrant's Report on Form 8-K
dated March 11, 1998 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)
-20-
<PAGE>
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)
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 30, 1999, January
31, 1998 and February 1, 1997
* Filed herewith
-21-
<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 30, 1999 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
-22-
<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 30,
1999 and January 31, 1998 and the related consolidated
statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended
January 30, 1999. 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 30, 1999 and January 31, 1998 and the results
of their operations and cash flows for each of the years in
the three year period ended January 30, 1999 in conformity
with generally accepted accounting principles.
Janover Rubinroit, LLC
/s/ Janover Rubinroit, LLC
Garden City, New York
March 17, 1999
F-1
<PAGE>
<TABLE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 30, 1999 and January 31, 1998
January 30, January 31,
1999 1998
(In thousands except share data)
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $10,188 $11,099
Merchandise inventories 21,074 16,821
Prepaid expenses and other current assets 3,780 3,024
Total current assets 35,042 30,944
Property, plant and equipment at cost 32,138 24,820
Less accumulated depreciation 9,238 6,306
22,900 18,514
Other assets 20 23
Total Assets $57,962 $49,481
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 21 $ 20
Trade accounts payable 8,576 6,048
Accrued expenses and taxes 9,738 7,726
Net liabilities of discontinued operations 1,303 1,173
Total current liabilities 19,638 14,967
Long-term debt 712 733
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 8,506,901 and
8,503,901 shares, respectively 9 9
Capital in excess of par value 43,087 43,063
Accumulated deficit (1,747) (5,499)
41,349 37,573
Less treasury stock, at cost, 910,861 and
924,261 shares, respectively 3,737 3,792
Total stockholders' equity 37,612 33,781
Total Liabilities and Stockholders' Equity $57,962 $49,481
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 30, 1999, January 31, 1998 and February 1, 1997
January 30, January 31, February 1,
1999 1998 1997
(In thousands except share data)
<CAPTION>
<S> <C> <C> <C>
Net sales $107,886 $81,664 $59,410
Costs and expenses:
Cost of products sold including
buying and warehousing costs 65,405 50,388 36,542
Selling and administrative expenses 38,804 33,552 31,124
104,209 83,940 67,666
Operating income (loss) 3,677 (2,276) (8,256)
Interest income 269 448 839
Interest expense (194) (90) (75)
Income (loss)before income taxes 3,752 (1,918) (7,492)
Income taxes - - -
Net income (loss) $3,752 $(1,918) $(7,492)
Basic income (loss) per share $ .49 $ (.25) $ (1.00)
Diluted income (loss) per share $ .49 $ (.25) $ (1.00)
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 30, 1999, January 31, 1998, and February 1, 1997
(In thousands)
Capital in Retained Treasury Stock
Common Stock Excess of Earnings (at Cost)
Shares Amount Par Value (Deficit) Shares Amount
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
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
Exercise of stock options 3 - 24 - (13) (55)
Net income for the year - - - 3,752 - -
Balance - January 30, 1999 8,507 $ 9 $43,087 $(1,747) 911 $ 3,737
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 30, 1999, January 31, 1998 and February 1, 1997
(In thousands)
<CAPTION>
January 30, January 31, February 1,
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ 3,752 $(1,918) $(7,492)
Adjustments to reconcile to net cash
provided (used):
Depreciation 2,932 2,490 1,926
Loss on disposal of fixtures and equipment - 243 327
Decrease (increase) in non-cash
working capital accounts:
Merchandise inventories (4,253) 497 (6,990)
Prepaid expenses and other current assets (756) (272) 291
Trade accounts payable 2,528 999 (234)
Accrued expenses and taxes 2,012 634 2,734
Net cash provided by (used in) continuing
operations 6,215 2,673 (9,438)
Net cash provided by (used in)
discontinued operations 130 (1,252) (1,585)
Net cash provided by (used in) operating
activities 6,345 1,421 (11,023)
Cash flows from investing activities:
Proceeds from sales of property -
discontinued operations - - 7,594
Property additions (7,318) (1,664) (9,397)
Other 3 27 5
Net cash used in investing activities (7,315) (1,637) (1,798)
Cash flows from financing activities:
Proceeds from sale of common stock - - 16,010
Increase in long-term debt - - 780
Maturities of long-term debt (20) (18) (9)
Exercise of employee options 79 - 101
Net cash provided by (used in) financing
activities 59 (18) 16,882
Net increase (decrease) in cash and cash
equivalents (911) (234) 4,061
Cash and cash equivalents - beginning of year 11,099 11,333 7,272
Cash and cash equivalents - end of year $10,188 $11,099 $11,333
Supplemental cash flow information:
Net cash paid during the year for:
Interest expense $ 195 $ 91 $ 75
Income taxes, net - - -
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. The fiscal years for the financial
statements presented all consist of 52 week periods.
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.
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 - PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
Fiscal Years Ended
January 30, January 31,
1999 1998
(In thousands)
<CAPTION>
<S> <C> <C>
Land $ 272 $ 272
Building and improvements 1,896 1,734
Fixtures and equipment 14,839 11,511
Leasehold improvements 15,131 11,303
32,138 24,820
Less accumulated depreciation (9,238) (6,306)
$22,900 $18,514
</TABLE>
F-7
<PAGE>
NOTE 3 - ACCRUED EXPENSES AND TAXES:
<TABLE>
Fiscal Years Ended
January 30, January 31,
1999 1998
(In thousands)
<CAPTION>
<S> <C> <C>
Payroll and related benefits $1,721 $1,082
Rent and occupancy 2,051 1,802
Insurance 226 472
Advertising 2,103 845
Restructuring charges - 697
Fixtures and equipment 302 206
Other 3,335 2,622
$9,738 $7,726
</TABLE>
NOTE 4 - LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
Fiscal Years Ended
January 30, January 31,
1999 1998
(In thousands)
<CAPTION>
<S> <C> <C>
Revolving credit facility $ - $ -
8% unsecured promissory note,
due in quarterly installments
through 2016 733 753
733 753
Less current maturities 21 20
$712 $733
</TABLE>
The Company has a revolving credit agreement which provides for maximum
borrowings of up to $20 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. Interest rates on
borrowings ranged from 7.75% to 8.50% during the year. 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 $21,000,
$23,000, $25,000, $26,000 and $28,000.
F-8
<PAGE>
NOTE 5 - COMMITMENTS AND CONTINGENCIES:
Minimum annual commitments under non-cancelable leases in effect at January
30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 $ 11,927
2001 12,783
2002 12,868
2003 12,650
2004 12,615
Thereafter 51,121
$113,964
</TABLE>
At January 30, 1999, 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.
Rental expense (income) for operating leases was as follows:
<TABLE>
Fiscal Years Ended
January 30, January 31, February 1,
1999 1998 1997
(In thousands)
<CAPTION>
<S> <C> <C> <C>
Minimum rentals $ 7,853 $6,979 $ 5,430
Taxes and other costs 2,775 2,637 2,115
Sublease rentals (73) - (295)
$10,555 $9,616 $ 7,250_
</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.
F-9
<PAGE>
NOTE 6 - 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 (none-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
on March 11, 1998, the Board of Directors of the Company adopted a new
Stockholder Rights Plan (the "Plan") to succeed the Stockholder Rights Plan
that expired on May 15, 1998. Under the terms of the Plan, which expires
on May 15, 2008, the Company declared a dividend of one preferred stock
purchase right for every outstanding share of common stock to stockholders
of record on May 15, 1998. The rights are exercisable, if not previously
redeemed, under certain circumstances involving actual or potential
acquisitions of 15% or more of the outstanding Common stock of the Company.
Each right represents a right to buy from the Company 1/100th of a share of
Series A Junior Participating Stock, par value .001, at a price of $25.00,
subject to certain anti-dilution adjustments. The rights are redeemable by
the Company at a redemption price of $.001 per right.
NOTE 7 - STOCK OPTIONS:
Stock incentive plan
The Company's Stock Incentive Plan (the "Plan") for key employees and
consultants provides for the granting 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. The plan provides for automatic increases in the number of shares
available for issuance under the plan of 2% per year of the total
outstanding shares of common stock at the end of the immediately preceding
year. In no event may the sum of the number of shares subject to then
outstanding awards under all of the Company's stock-based incentive plans
("Stock Plans") and the shares then available for future awards under the
Stock Plans exceed 15% of the number of then outstanding shares of Common
Stock, together with the shares subject to the then outstanding awards
under the Stock Plans and the shares then available for future awards under
the Stock Plans.
F-10
<PAGE>
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>
Fiscal Years Ended
January 30, 1999 January 31, 1998
Weighted Avg. Weighted Avg.
Shares Exercise Price Shares Exercise Price
<CAPTION>
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 519,825 $4.97 630,859 $ 5.81
Granted 291,600 $4.83 247,000 $ 3.39
Exercised (16,400) $4.82 -
Terminated (67,900) $5.26 (358,034) $ 5.36
Outstanding at end of
year 727,125 $4.92 519,825 $ 4.97
Exercisable at end of
year 232,913 $5.56 141,406 $ 6.01
Available for grant at
end of year 198,036 128,800
</TABLE>
F-11
<PAGE>
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
Outstanding Options Options Exercisable
Range of Weighted Average
Exercise Number Remaining Number Weighted Average
Prices Outstanding Contractual Life Exercisable Exercise Price
<CAPTION>
<S> <C> <C> <C> <C>
$ 3.00 - $ 5.00 409,250 8.56 65,413 $ 3.50
$ 5.01 - $10.00 311,375 6.81 162,625 $ 6.20
$10.01 - Up 6,500 6.75 4,875 $13.13
727,125 232,913
</TABLE>
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>
Fiscal Years Ended
January 30, January 31, February 1,
1999 1998 1997
<CAPTION>
<S> <C> <C> <C>
Expected life (years) 5 5 5
Risk-free interest rate 4.55% 6.0% 6.0%
Expected volatility 50.1% 44.7% 45.3%
Dividend yield 0.0% 0.0% 0.0%
</TABLE>
Had compensation for options granted in Fiscal 1999, 1998 and 1997 been
determined consistent with SFAS No. 123, the Company's net income (loss)
and net income (loss) per share would approximate the pro-forma amounts
indicated below.
<TABLE>
Fiscal Years Ended
January 30, January 31, February 1,
1999 1998 1997
(In thousands except share data)
<CAPTION>
<S> <C> <C> <C>
Net income (loss) $3,546 $(2,042) $(7,558)
Basic income (loss) per share $ .47 $ (.27) $ (1.01)
Diluted income (loss) per
share $ .46 $ (.27) $ (1.01)
</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 $2.27, $1.61, and
$3.25 for Fiscal 1999, 1998 and 1997 respectively.
F-12
NOTE 8 - TAXES ON INCOME:
There is no current or deferred tax expense for fiscal 1998 and 1997. The
Company utilized net operating loss carryforwards in 1999 and was in a loss
position in 1998 and 1997.
Income taxes (benefit) consist of the following:
<TABLE>
Fiscal Years Ended
January 30, January 31, February 1,
1999 1998 1997
(In thousands)
<CAPTION>
<S> <C> <C> <C>
Current:
Federal $ 100 $ - $ -
State and local - - -
100 - -
Deferred (100) - -
$ - $ - $ -
</TABLE>
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
Utilization of loss carryforwards (38) - -
-% -% -%
</TABLE>
F-13
<PAGE>
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>
Fiscal Years Ended
January 30, January 31,
1999 1998
(In thousands)
<CAPTION>
<S> <C> <C>
Net operating loss carryforward $6,282 $ 8,133
Capitalizable inventory costs 342 262
Discontinued operations 711 641
Allowance for doubtful accounts 485 485
Restructured operations and other 680 597
Gross deferred tax assets 8,500 10,118
Depreciation (827) (508)
Gross deferred tax liabilities (827) (508)
Net deferred tax assets 7,673 9,610
Valuation allowance 7,673 9,610
Net tax assets $ - $ -
</TABLE>
The Company has available net operating loss carryforwards of approximately
$16,500 which expire between 2011 and 2013 and alternative minimum tax
credit carryovers of approximately $100 which can be carried forward
indefinitely.
NOTE 9 - 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. Effective
during fiscal year 2000, the Company's matching contribution will increase
to 25% of the first 5% of compensation contributed.
The Company in the past participated in various multi-employer pension
plans. Contributions and costs were determined in accordance with the
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.
F-14
<PAGE>
NOTE 10 - EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted income
(loss) per share:
<TABLE>
Fiscal Years Ended
January 30, January 31, February 1,
1999 1998 1997
(In thousands except share data)
<CAPTION>
<S> <C> <C> <C>
Numerator
Net income (loss)- numerator for
basic and diluted income (loss)
per share $ 3,752 $ (1,918) $ (7,492)
Denominator
Denominator for basic income (loss)
per share - weighted average
shares 7,588 7,580 7,488
Effect of dilutive securities -
employee stock options 134 7 113
Denominator for diluted
earnings per share -
weighted average shares
and dilutive potential
common shares 7,722 7,587 7,601
Income (loss) per share:
Basic $ .49 $ (.25) $ (1.00)
Diluted $ .49 $ (.25) $ (1.00)
In accordance with FASB No. 128, as a result of losses from continuing
operations in fiscal 1998 and 1997, the inclusion of employee stock options
were antidilutive and, therefore, were not utilized in the computation of
diluted earnings per share.
</TABLE>
NOTE 11 - INDUSTRY SEGMENTS:
The Company operates substantially in one industry segment which includes
the retail sales of children's toys and other products.
F-15
<PAGE>
NOTE 12 - INTERIM FINANCIAL DATA (UNAUDITED):
<TABLE>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands except share data)
<CAPTION>
<S> <C> <C> <C> <C>
Fiscal Year Ended January 30, 1999:
Sales $18,045 $18,431 $22,670 $48,740
Gross profit 7,015 7,342 8,854 19,270
Net income (loss) $(1,049) $(1,525) $(1,554) $ 7,880
Net income (loss) per share:
Basic $ (.14) $ (.20) $ (.20) $ 1.04
Assuming dilution $ (.14) $ (.20) $ (.20) $ 1.00
Weighted Average Shares:
Basic 7,580 7,587 7,592 7,594
Assuming dilution 7,670 7,699 7,661 7,860
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
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.
</TABLE>
F-16
<PAGE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
For the Fiscal Years Ended
January 30, 1999, January 31, 1998 and February 1, 1997
(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 30,
1999 $ 1,277 $ - $ - $ - $ 1,277
Year ended January 31,
1998 $ 1,277 $ - $ - $ - $ 1,277
Year ended February 1,
1997 $ 1,277 $ - $ - $ - $ 1,277
All amounts are included in discontinued operations.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 10,188
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 21,074
<CURRENT-ASSETS> 35,042
<PP&E> 32,138
<DEPRECIATION> 9,238
<TOTAL-ASSETS> 57,962
<CURRENT-LIABILITIES> 19,638
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 37,603
<TOTAL-LIABILITY-AND-EQUITY> 57,962
<SALES> 107,886
<TOTAL-REVENUES> 107,886
<CGS> 65,405
<TOTAL-COSTS> 65,405
<OTHER-EXPENSES> 38,804
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 194
<INCOME-PRETAX> 3,752
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,752
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,752
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
