<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JULY 31, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-20035
NATURAL WONDERS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0141610
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4209 TECHNOLOGY DRIVE, FREMONT, CALIFORNIA 94538
(Address of principal executive offices)
(Zip code)
510-252-9600
(Registrant's telephone number, including area code)
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
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Common stock outstanding as of August 27, 1999: 7,865,103 shares of common
stock.
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NATURAL WONDERS, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Statements of Operations 3
Quarters and six months ended July 31, 1999 and August 1, 1998
Condensed Balance Sheets 4
July 31, 1999, January 30, 1999 and August 1, 1998
Condensed Statements of Cash Flows 5
Six months ended July 31, 1999 and August 1, 1998
Notes to Condensed Financial Statements 6 - 7
ITEM 2. Management's Discussion and Analysis of 7 - 10
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 11
ITEM 1. Legal Proceedings - None
ITEM 2. Changes in Securities - None
ITEM 3. Defaults Upon Senior Securities - None
ITEM 4. Submission of Matters to a Vote of Security Holders - None
ITEM 5. Other Information - None
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURE 12
</TABLE>
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NATURAL WONDERS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHES ENDED
-------------------------- --------------------------
JULY 31, AUGUST 1, JULY 31, AUGUST 1,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 25,415 $ 27,443 $ 46,967 $ 50,708
Cost of goods sold and
store occupancy expenses 20,831 19,961 39,781 39,398
----------- ----------- ---------- ----------
Gross margin 4,584 7,482 7,186 11,310
Selling, general & administrative expenses 10,833 9,942 20,446 20,991
----------- ----------- ---------- ----------
Operating loss (6,249) (2,460) (13,260) (9,681)
Interest expense 35 57 39 125
Interest income and other, net 0 26 98 52
----------- ----------- ---------- ----------
Loss before taxes (6,284) (2,491) (13,201) (9,754)
Income tax benefit 2,325 922 4,885 3,609
----------- ----------- ---------- ----------
Net loss $ (3,959) $ (1,569) $ (8,316) $ (6,145)
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Net loss per common share basic and diluted: $ (0.50) $ (0.19) $ (1.05) $ (0.76)
Weighted average common shares outstanding
basic and diluted: 7,928 8,084 7,940 8,066
Stores open at end of period 177 175 177 175
</TABLE>
See notes to financial statements
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NATURAL WONDERS, INC.
CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
JULY 31, JANUARY 30, AUGUST 1,
1999 1999 1998
-------------------- -------------------- --------------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 233 $ 4,841 $ 298
Short-term investments 0 7,380 0
Merchandise inventories 22,242 22,707 26,263
Prepaid income taxes 5,006 1,403 3,639
Prepaid expenses and other current assets 4,583 4,318 5,426
-------------------- -------------------- --------------------
Total current assets 32,064 40,649 35,626
Property and Equipment:
Leasehold improvements 29,976 30,077 30,103
Property and equipment under capital lease 0 0 4,993
Furniture, fixtures and equipment 31,031 34,106 29,080
-------------------- -------------------- --------------------
61,007 64,183 64,176
Less accumulated depreciation and amortization (34,491) (37,510) (35,493)
-------------------- -------------------- --------------------
26,516 26,673 28,683
Other Assets 3,497 3,526 2,217
-------------------- -------------------- --------------------
Total Assets $ 62,077 $ 70,848 $ 66,526
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 5,362 $ 8,500 $ 3,979
Accrued compensation and related costs 2,275 2,300 2,052
Accrued liabilities 2,071 3,037 3,326
Short-term borrowings 4,219 0 2,650
Income taxes payable 0 0 121
Current portion of capital lease obligations 0 0 672
Current portion of long-term debt 0 0 373
-------------------- -------------------- --------------------
Total current liabilities 13,927 13,837 13,173
Capital Lease Obligations 0 0 63
Long-Term Debt 0 0 178
Deferred Rents 3,340 3,561 3,691
Commitments and Contingencies
Stockholders' Equity:
Common stock, par value $.0001; authorized
17,000,000 shares; issued and outstanding
7,868,703; 7,951,392; 8,058,289 shares 1 1 1
Capital in excess of par value 33,750 34,073 34,292
Retained earnings 11,059 19,376 15,128
-------------------- -------------------- --------------------
Total stockholders' equity 44,810 53,450 49,421
-------------------- -------------------- --------------------
Total Liabilities and Stockholders' Equity $ 62,077 $ 70,848 $ 66,526
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
</TABLE>
See notes to financial statements
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NATURAL WONDERS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
JULY 31, 1999 AUGUST 1, 1998
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (8,316) $ (6,145)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 3,575 3,419
Loss on disposition of asset 72 183
Change in operating assets and liabilities:
Merchandise inventories 465 (3,079)
Prepaid expenses and other assets (3,839) (3,722)
Trade accounts payable (3,138) (4,018)
Accrued compensation and related costs (25) (772)
Accrued liabilities (966) (310)
Income tax payable 0 (1,737)
Deferred rent (222) (114)
----------- -----------
Net cash used in operating activities (12,394) (16,295)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments 0 (6,902)
Sales of short-term investments 7,380 20,300
Proceeds from sale of equipment 0 0
Purchases of property and equipment (3,491) (3,440)
Business acquisition 0 0
----------- -----------
Net cash provided by investing activities 3,889 9,958
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations 0 (592)
Principal payments on long-term debt 0 (1,538)
Net borrowing on line of credit 4,219 2,650
Purchase of treasury stock (351) (532)
Issuance of common stock under employee stock purchase program 29 39
Exercise of stock options and warrants 0 257
----------- -----------
Net cash provided by financing activities 3,897 284
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,608) (6,053)
CASH AND CASH EQUIVALENTS
Beginning of period 4,841 6,351
----------- -----------
End of period $ 233 $ 298
----------- -----------
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CASH PAID DURING PERIOD:
Interest $ 39 $ 129
Income taxes $ 69 $ 1,737
</TABLE>
See notes to financial statements
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NATURAL WONDERS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The financial statements are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which, in the opinion of
management, are necessary for a fair presentation of the financial
position, results of operations, and cash flows for the periods presented.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for any full fiscal
year.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's 1998
Annual Report to Stockholders and Form 10-K for the fiscal year ended
January 30, 1999 as filed with the Securities and Exchange Commission.
2. New Accounting Pronouncements: SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" will be effective for the Company, as
delayed by SFAS No. 137, in June 2000. SFAS No. 133 established accounting
and reporting standards for derivative instruments embedded in other
contracts, and hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The
Company has not yet evaluated the impact of SFAS No. 133 on its financial
statements.
3. The Company had a credit facility agreement with a commercial bank for the
purpose of financing seasonal working capital needs. The total borrowings
on the line of credit and the letters of credit could not exceed
$23,000,000 during the increase period or $12,000,000 during the remainder
of the term. The Company was out of compliance with the bank covenants as
of May 1, 1999 and received a waiver valid through June 15, 1999. The
Company entered into an amended and restated line effective June 15, 1999.
The new line is for a term of three years, with a maximum credit line of
$30,000,000, and is provided by the same commercial bank, together with an
additional lender acting as administrative agent. The line provides for
revolving advances up to the lesser of 60% of the value of eligible
inventory, 80% of the net retail liquidation value of eligible inventory,
or the maximum credit line. As of July 31, 1999, total availability under
the line was $9,138,000. The line includes up to $5,000,000 for the
issuance of commercial and standby letters of credit. The line of credit
must be fully repaid for a 30 day consecutive period between January 1 and
February 15 each year. The Company has the option of choosing interest
payable at a rate based on LIBOR plus 2.25% or a rate equal to the bank's
prime rate. The agreement, contains restrictive covenants, which include
maintaining certain minimum tangible net worth levels and requiring bank
consent for the payment of dividends. As of July 31, 1999, the Company was
in compliance with these covenants. The agreement also includes certain
prepayment penalties.
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SIGNATURE
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.
Dated: September 15, 1999
NATURAL WONDERS, INC.
(Registrant)
/s/ Peter G. Hanelt
--------------------------------------
Peter G. Hanelt,
Chief Executive Officer
President
Chief Financial Officer
(Signing on behalf of the registrant and
as Principal Accounting and Financial Officer)
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