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 April 29, 2000
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 June 2, 2000, there were 7,608,640 outstanding shares of
the issuer's common stock, par value $.001 per share (excluding
898,261 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
April 29, 2000, May 1, 1999 and January 29, 2000 3
Condensed Consolidated Statements of Operations
Thirteen Weeks Ended April 29, 2000 and May 1, 1999 4
Condensed Consolidated Statements of Cash Flows
Thirteen Weeks Ended April 29, 2000 and May 1, 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. - Quantitative and Qualitative Disclosures About 11
Market Risk
PART II - OTHER INFORMATION 13
SIGNATURES 14
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
<CAPTION>
April 29, January 29, May 1,
2000 2000 1999
(In thousands, except share data)
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ASSETS
Current assets:
Cash and cash equivalents $ 541 $ 491 $ 4,792
Merchandise inventories 34,470 33,610 25,901
Prepaid expenses and other current assets 3,093 3,244 1,850
Deferred income taxes 2,965 1,448 -
Total current assets 41,069 38,793 32,543
Property, plant and equipment - net 28,931 28,931 23,327
Other assets
Deferred income tax 4,992 4,992 -
Other 163 166 27
5,155 5,158 27
Total Assets $75,155 $72,882 $55,897
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 8,955 $ 4,019 $ 21
Trade accounts payable 10,403 9,498 11,237
Accrued expenses and taxes 8,876 9,976 6,319
Net liabilities of discontinued operations - - 1,333
Total current liabilities 28,234 23,493 18,910
Long-term debt 684 689 702
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 9 9 9
Capital in excess of par value 43,098 43,097 43,098
Accumulated deficit 6,815 9,291 (3,115)
49,922 52,397 39,992
Less treasury stock, at cost, 898,261,
903,661 and 901,261 shares, respectively 3,685 3,697 3,707
Total stockholders' equity 46,237 48,700 36,285
Total Liabilities and Stockholders' Equity $75,155 $72,882 $55,897
See accompanying notes to Condensed Consolidated Financial Statements.
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NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
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Thirteen Weeks Ended
April 29, May 1,
2000 1999
(In thousands, except per share data)
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Net sales $24,072 $22,890
Costs and expenses:
Cost of product sold including
buying and warehousing costs 15,178 13,900
Selling and administrative expenses 12,695 10,103
27,873 24,003
Operating loss (3,801) (1,113)
Interest income 1 80
Interest expense (193) (21)
Loss before income tax and cumulative
effect of a change in accounting
principle (3,993) (1,054)
Income taxes (benefit) (1,517) -
Loss before cumulative effect of a
change in accounting principle (2,476) (1,054)
Cumulative effect of a change in accounting
principle - 314
Net loss $(2,476) $(1,368)
Net loss per share basic and diluted:
Before cumulative effect of a change
in accounting principle $ (0.33) $ (0.14)
Cumulative effect of a change in
accounting principle - (0.04)
Net loss per share $ (0.33) $ (0.18)
Weighted average shares outstanding 7,605 7,599
See accompanying notes to Condensed Consolidated Financial Statements
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NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
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Thirteen Weeks Ended
April 29, May 1,
2000 1999
(In thousands)
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Cash flows from operating activities:
Net loss before cumulative effect of a change
in accounting principle $(2,476) $(1,054)
Adjustments to reconcile to net cash provided
(used):
Depreciation 1,108 817
Deferred income taxes (1,517) -
Decrease (increase) in non-cash working capital
accounts:
Merchandise inventories (860) (4,827)
Prepaid expenses, taxes and other current assets 151 1,616
Trade accounts payable, accrued expenses and taxes (195) (758)
Net cash (used in) continuing operations (3,789) (4,206)
Decrease (increase) in non-cash working capital
accounts and other of discontinued operations - 30
Net cash provided by discontinued operations - 30
Net cash (used in)operating activities (3,789) (4,176)
Cash flows from investing activities:
Property additions (1,108) (1,244)
Other 3 (7)
Net cash (used in)investing activities (1,105) (1,251)
Cash flows from financing activities:
Proceeds from line of credit 12,058 -
Payments on line of credit (7,122) -
Proceeds from exercise of employee stock options 13 41
Reduction of long-term debt (5) (10)
Net cash provided by financing activities 4,944 31
Net increase (decrease) in cash and cash equivalents 50 (5,396)
Cash and cash equivalents - beginning of period 491 10,188
Cash and cash equivalents - end of period $ 541 $ 4,792
Supplemental cash flow information
Interest expense $ 193 $ 21
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 and 10 K-A for the year ended January 29,
2000.
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 effective income tax rate
used for the period ended April 29, 2000 was 38%.
For the period ended May 1, 1999 no tax benefit was
provided.
NOTE 4. Inventories.
Inventories are stated at the lower of cost (first-
in, first-out) or market.
NOTE 5. 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
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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
7,711,000 and 7,852,000 shares for the quarters
ended April 29, 2000 and May 1, 1999, 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 6. 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 for the quarter ended May 1, 1999
which is so reflected in the Statement of
Operations.
NOTE 7. 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.
NOTE 8. Merger.
On April 21, 2000, the Company entered into a merger
agreement with Zany Brainy, Inc., a Pennsylvania
corporation, and Night Owl Acquisition, Inc., a
Delaware corporation and a wholly-owned subsidiary
of Zany Brainy. The merger agreement provides that
Night Owl Acquisition will merge with and into the
Company so that the Company will become a wholly-
owned subsidiary of Zany Brainy. Each share of the
Company's common stock outstanding immediately prior
to the merger will be converted into 1.233 shares of
Zany Brainy common stock.
Completion of the merger is subject to stockholder
approval. We expect to complete the merger by the
end of the second quarter of fiscal 2001. The
Company estimates that approximately $1.3 million
after tax of merger-related costs will be expensed
in the quarter that the merger is consummated.
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NOTE 9. Financing Agreement.
On May 17, 2000 the Company amended its revolving
credit facility to extend the term until May 2003
and to increase the amount of available borrowings
to $50 million.
NOTE 10. Distribution Facility.
On April 19, 2000 the Company signed a 10 year lease
for a second distribution center in Murfreesboro, TN
that is expected to become operational in the
beginning of the third quarter of fiscal 2001.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended April 29, 2000 Compared With
Thirteen Weeks Ended May 1, 1999
Results of Operations
Net sales increased 5.2% to $24.1 million in the thirteen
week period ended April 29, 2000 from $22.9 million in the
comparable period in the prior year, primarily due to the
addition of one store in the current quarter and sixteen
stores during last year offset by decreases in comparable
store sales of 15%. The Company had 42 comparable stores at
April 29, 2000. The Company operated 59 Noodle Kidoodle
stores at April 29, 2000 compared to 44 Noodle Kidoodle
stores at May 1, 1999.
Gross profit (derived from net sales less cost of products
sold, which includes buying and warehousing costs) decreased
1.1% to $8.9 million in the first quarter ended April 29,
2000 from $9.0 million in the comparable period in the prior
year. Gross profit as a percentage of net sales ("gross
profit percentage") decreased to 36.9% for the thirteen week
period ended April 29, 2000 from 39.3% in the comparable
period in the prior year, primarily due to changes in product
mix and increased distribution costs in the current quarter.
Distribution costs increased because the Company leased for
one year 65,000 square feet of additional warehousing space
in the second quarter of last year to supplement the storage
capacity of its Phillipsburg, NJ distribution center, and
also because as our store base expands, freight costs to more
distant store locations increase.
Selling and administrative expenses increased $2.6 million to
$12.7 million in the thirteen week period ended April 29,
2000 from $10.1 million in the comparable period in the prior
year. Direct store expenses, which consist of payroll,
occupancy, advertising and other store operating costs,
increased $2.3 million as a result of a change in store base
and higher sales levels. Home office expenses increased $0.4
million, offset by a decrease in pre-opening expenses of $0.1
million. Selling and administrative expenses, as a percent of
net sales, increased to 52.7% in the current quarter ended
April 29, 2000 from 44.1% in the comparable period in the
prior year, primarily as a result of increased store base.
Net interest expense for the first quarter ended April 29,
2000 was $192,000 as compared to net interest income of
$59,000 in the comparable period in the prior year. The
increase in interest expense of $251,000 in the current
quarter resulted primarily from an increase in borrowing
under the Company's revolving credit facility.
Income tax provisions are based on estimated annual effective
tax rates. The effective income tax rate used for the
quarter ended April 29, 2000 was 38%. The Company did not
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record a tax benefit for the losses for the thirteen-week
period ended May 1, 1999.
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", for the quarter ended May 1,
1999. This accounting change requires the Company to expense
on a current basis previously capitalized pre-opening costs.
Net loss increased $1.1 million to $2.5 million ($.33 per
share) for the quarter ended April 29, 2000 from $1.4 million
($.18 per share) in the comparable period in the prior year.
Liquidity and Capital Resources.
During the thirteen week period ended April 29, 2000 the
Company's operating activities of its continuing operations
used $3.8 million of cash. This use of cash resulted from
the net loss of $2.5 million, an increase in working capital
of $0.9 million, and an increase in deferred tax assets of
$1.5 million, offset by an increase in non-cash charges of
$1.1 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 $1.1 million primarily for the purchase of
fixed assets for new stores. Borrowings under the Company's
revolving credit facility increased by $4.9 million in the
first quarter ended April 29, 2000. As a result of the
foregoing, cash and cash equivalents increased during the
period by $0.1 million.
On April 21, 2000, the Company entered into a merger
agreement with Zany Brainy, Inc., a Delaware corporation, and
Night Owl Acquisition, Inc., a Delaware corporation and a
wholly-owned subsidiary of Zany Brainy. The merger agreement
provides that Night Owl Acquisition will merge with and into
the Company so that the Company will become a wholly-owned
subsidiary of Zany Brainy. Each share of the Company's
common stock outstanding immediately prior to the merger will
be converted into 1.233 shares of Zany Brainy common stock.
Completion of the merger is subject to stockholder approval.
We expect to complete the merger by the end of the second
quarter of fiscal 2001.
The Company maintains a revolving credit facility, which was
to expire in June 2000, with The CIT Group/Business Credit,
Inc., which provided up to $15 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. Interest rate on borrowings ranged from
8.50% to 9.00% during the current quarter. The agreement
contains certain covenants which among other items, limits
the payment of cash dividends when borrowings under the
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agreement are outstanding. As of April 29, 2000, $8.9
million of borrowings and $1.3 million of letters of credit
were outstanding under the revolving credit facility.
On May 17, 2000 the Company amended its revolving credit
facility to extend the term until May 2003 and to increase
the amount of available borrowings to $50 million.
The Company opened one store during the three months ended
April 29, 2000 in Suffolk County, NY. A second store was
opened in Westport, CT on May 6, 2000. Without reference to
the merger, the Company expects to open six stores in the
next two quarters of fiscal 2001. 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. On April 19, 2000 the
Company signed a 10 year lease for a second distribution
center in Murfreesboro, TN that is expected to become
operational in the beginning of the third quarter of fiscal
2001. The Company's lease of a 65,000 square foot
distribution facility in the second quarter of last year to
support its peak seasonal inventory requirements expires in
June 2000 and will not be renewed.
The Company has available net operating loss carryforwards of
approximately $16.0 million for income tax purposes, the use
of which will be limited upon completion of the merger.
Until completion of the merger, the Company expects to fund
its near-term cash requirements principally by borrowing
under its revolving credit facility. If the merger does not
occur, 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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Cautionary statement pursuant to safe harbor provisions of
the private securities litigation act of 1995
This report contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended. When used in this report and the documents
incorporated herein by reference, the words "anticipate",
"believe", "estimate", and similar expressions are generally
intended to identify forward-looking statements. Forward-
looking statements include, among others, the statements
about the following: our ability to provide a creative
merchandise selection and superior customer service; our
ability to service new and existing customers over the
internet and the potential negative effects that selling our
products on the internet could have on our existing store
sales and on our existing base of customers; our ability to
conduct our operations at a lower cost than that of our
internet only competitors; our ability to profitably expand
our store base; our ability to successfully bring our second
distribution center on stream; and our ability to complete
the merger with Zany Brainy.
There are important factors that could cause actual results
to differ materially from those expressed or implied by such
forward-looking statements including, but not limited to, the
following: a decline in general economic and business
conditions and in the specialty retail or toy industry in
particular; our inability to manage our growth, open new
stores on a timely basis and expand in new and existing
markets; our ability to successfully market and expand our
internet shopping site; the availability of product and our
ability to replenish product on a timely basis; our ability
to successfully manage our inventory; unanticipated cash
requirements to support current operations or expansion of
our business; the availability and cost of additional capital
to fund our operations and our ability to attract, train and
retrain highly qualified associates. These and other risks
and uncertainties affecting Noodle Kidoodle are discussed in
greater detail in this report and in other fillings by the
Company with the Securities and Exchange Commission.
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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 4.4 Amendment, dated May 17, 2000 to the Financing
Agreement, dated June 27, 1997 between Noodle
Kidoodle, Inc., and the CIT Group/Business
Credit, Inc. is attached to this quarterly
report on Form 10-Q for the period ended April
29, 2000.
Exhibit 27 Financial Data Schedule (SEC/EDGAR only)
(b)None.
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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 13, 2000 /s/ Stanley Greenman
Stanley Greenman, Chairman
of the Board, Chief
Executive Officer, and
Treasurer
(Principal Executive
Officer)
