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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: May 4, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period to
------------------- -----------------------
Commission File Number: 0-25002
WHAT A WORLD!, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
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<S> <C> <C>
Delaware 59-3200879
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number)
10901-B Roosevelt Boulevard
Suite 100
St. Petersburg, Florida 33716
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number: (813) 577-9366
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N/A
- - --------------------------------------------------------------------------------
(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last
Report)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: At June 17, 1996, there were
2,118,125 shares outstanding of common stock, $.01 par value per share.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
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WHAT A WORLD!, INC.
INDEX
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PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements (Unaudited):
Condensed Balance Sheets - February 3, 1996 and May 4, 1996............ 3
Condensed Statements of Operations for the Thirteen Weeks Ended
April 29, 1995 and May 4, 1996...................................... 4
Condensed Statements of Cash Flows for the Thirteen Weeks Ended
April 29, 1995 and May 4, 1996...................................... 5
Notes to Condensed Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 7
PART II. OTHER INFORMATION
- - ---------------------------
Item 6. Exhibits and Reports on Form 8-K.............................. 10
SIGNATURES............................................................. 11
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WHAT A WORLD!, INC.
CONDENSED BALANCE SHEETS
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<CAPTION>
February 3, May 4,
ASSETS 1996 1996
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(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,386,998 $ 717,053
Certificate of deposit 100,000 100,000
Construction allowance receivable 267,000 67,000
Inventories 978,229 1,086,781
Prepaid expenses and other current assets 179,829 148,430
---------- -----------
Total current assets 2,912,056 2,119,264
PROPERTY AND EQUIPMENT, net 2,653,755 2,568,670
OTHER ASSETS 25,093 32,531
---------- -----------
Total assets $5,590,904 $ 4,720,465
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $1,033,907 627,803
Current maturities of capital lease obligations 64,999 65,234
---------- -----------
Total current liabilities 1,098,906 693,037
DEFERRED RENT 644,173 689,059
CAPITAL LEASE OBLIGATIONS 156,614 140,167
STOCKHOLDERS' EQUITY:
Common stock 21,181 21,181
Additional paid-in capital 4,538,782 4,538,782
Accumulated deficit (868,752) (1,361,761)
---------- -----------
Total stockholders' equity 3,691,211 3,198,202
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Total liabilities and stockholders' equity $5,590,904 $ 4,720,465
========== ===========
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The accompanying notes are an integral part of these balance sheets.
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WHAT A WORLD!, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
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<CAPTION>
13 Weeks Ended
April 29, 1995 May 4, 1996
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NET SALES $ 650,867 $1,203,124
COST OF SALES 336,445 623,966
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GROSS PROFIT 314,422 579,158
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 638,282 1,078,203
---------- ----------
LOSS FROM OPERATIONS (323,860) (499,045)
INTEREST AND OTHER INCOME 43,700 12,329
INTEREST EXPENSE (6,386) (6,293)
---------- ----------
37,314 6,036
---------- ----------
NET LOSS $ (286,546) $ (493,009)
========== ==========
NET LOSS PER WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARE $ (.14) $ (.23)
========== ==========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 2,118,125 2,118,125
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The accompanying notes are an integral part of these statements.
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WHAT A WORLD!, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<CAPTION>
13 Weeks Ended
April 29,1995 May 4, 1996
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OPERATING ACTIVITIES:
Net loss $ (286,546) $ (493,009)
Adjustments to reconcile net loss to net cash and
cash equivalents used in operating activities-
Depreciation and amortization 40,902 85,085
Changes in operating assets and liabilities-
Decrease in construction allowance receivable 40,000 200,000
Decrease (increase) in inventories 47,878 (108,552)
(Increase) decrease in prepaid expenses and other
current assets (22,340) 31,399
Increase in other assets (8,564) (7,438)
Decrease in accounts payable and accrued expenses (138,225) (406,104)
Increase in deferred rent 3,999 44,886
---------- ----------
Net cash and cash equivalents used in operating
activities (322,896) (653,733)
INVESTING ACTIVITIES:
Purchases of property and equipment (6,776) -
---------- ----------
Net cash and cash equivalents used in investing
activities (6,776) -
FINANCING ACTIVITIES:
Payments made on capital lease obligations (10,533) (16,212)
---------- ----------
Net cash and cash equivalents used in financing
activities (10,533) (16,212)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (340,205) (669,945)
CASH AND CASH EQUIVALENTS, beginning of period 2,952,129 1,386,998
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $2,611,924 $ 717,053
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 6,476 $ 6,137
</TABLE>
The accompanying notes are an integral part of these statements.
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WHAT A WORLD!, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
May 4, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying unaudited condensed interim financial statements of What A
World!, Inc. (the "Company") have been prepared in accordance with the
instructions to Form 10-QSB and do not include all of the information and notes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. These financial statements should be read in conjunction with
the financial statements and notes thereto for the year ended February 3, 1996,
which are included in the Company's Annual Report on Form 10-KSB filed on May
3, 1996.
Due to the seasonal nature of the Company's business, results for interim
periods are not necessarily indicative of the results that may be expected for
the entire fiscal year.
Fiscal Year
The Company's Fiscal Year ends on the Saturday closest to January 31.
Net Loss per Weighted Average Common and Common Equivalent Share
Net loss per weighted average common and common equivalent share is computed by
dividing net loss by the weighted average number of shares of common stock
outstanding and dilutive common equivalent shares from stock options and
warrants using the treasury stock method.
2. 1994 STOCK OPTION PLAN:
Following the approval by the Board of Directors and the Stockholders,
effective May 21, 1996, the 1994 Stock Option Plan (Stock Option Plan) was
amended to add 300,000 shares to the previously authorized 260,000 shares that
were subject to options under the Stock Option Plan. The amendment,
accordingly, results in a total of 560,000 shares of common stock available to
grant under the Stock Option Plan.
During the quarter ended May 4, 1996, the Company granted 100,000 options to
David F. Miller, the Company's President, at an exercise price of $1.50 per
share under the Stock Option Plan. The Company also granted 230,000 options to
certain employees (including officers) on May 21, 1996, at an exercise price of
$1.68 per share under the Stock Option Plan. The options are exercisable in
accordance with a specified schedule in the Stock Option Agreements that begins
at the date of grant and ends ten years from such date. The Company recognized
no compensation expense for these options.
As of May 4, 1996, 220,000 options were outstanding under the Stock Option
Plan.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company was organized in July 1993 and opened its first permanent store in
August 1993. Six of the Company's twelve permanent stores have been in
operation for over one year and the other six permanent stores were opened
between September 1995 and December 1995. Accordingly, the Company has a
limited operating history upon which an evaluation of its performance and
prospects can be made.
The Company operated six permanent stores at April 29, 1995 as compared to
twelve permanent stores at May 4, 1996.
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements as a result of the factors described herein,
including, but not limited to, the success of the Company's efforts to modify
its product assortment, the Company's ability to improve its merchandise
presentation, the Company's development of the temporary store concept during
the Christmas selling season, the timely introduction of new products, the
modification of the Company's cost structure and the seasonal impact of the
Company's business.
Thirteen Weeks Ended May 4, 1996 Compared to the Thirteen Weeks Ended April 29,
1995
Net sales for the 13 weeks ended May 4, 1996 (the "First Quarter of Fiscal
1996") increased by approximately $552,000 over net sales for the comparable 13
weeks ended April 29, 1995 (the "First Quarter of Fiscal 1995"). The increase
is principally a result of additional sales from 6 stores opened after the
First Quarter of Fiscal 1995.
Comparable store sales (sales of stores opened for the same months during the
comparable period in the prior year) decreased 17% in the First Quarter of
Fiscal 1996. To date, the Company has not been successful in adjusting its
product assortment to respond to the increased competition and the changing
demands of its customers. Management has recently taken steps to improve its
merchandise mix. Merchandising efforts to increase the sale of key products will
continue through more attractive in-store presentations. The Company recently
completed renovations in two of its locations where it will test customer
response to new in-store displays and feature presentations. Management will
continue to implement further modifications to the product assortment which
will include the introduction of new products and the continued focus on top
selling items. In addition, management has assessed its compensation and
incentive programs and is in the process of enacting changes which should
result in enhanced sales motivation for its employees. However, there can be
no assurance that these actions or any further actions will positively impact
sales or profitability.
Gross profit for the First Quarter of Fiscal 1996 was approximately $579,000 or
48.1% of net sales, compared with approximately $314,000 or 48.3% of net sales
for the First Quarter of Fiscal 1995. The decrease in gross profit as a
percentage of net sales was principally a result of markdowns which were taken
during the quarter in an effort to refine the product assortment.
Comparable store gross profit (gross profit of stores opened for the same
months during the comparable period in the prior year) decreased approximately
$63,000 to $251,000 or 46.7% of sales from approximately $314,000 or 48.3% of
sales. The decrease in comparable store gross profit as a percentage of sales
has resulted primarily from inventory markdowns.
Selling, general and administrative expenses ("SG&A") for the First Quarter of
Fiscal 1996 increased to approximately $1,078,000 from approximately $638,000
for the First Quarter of Fiscal 1995. The primary
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components of SG&A are store occupancy costs (which include rent, utilities,
common area charges, real estate taxes and other expenses associated with the
operation of a retail store in a regional mall), store management and sales
staff payroll, depreciation expense and corporate payroll. The increase in SG&A
was, for the most part, the result of increases in store operating expenses,
including store personnel compensation and occupancy costs associated with
additional permanent store openings. Included in the $1,078,000 of SG&A for the
First Quarter of Fiscal 1996 was approximately $241,000 of corporate overhead
expenses. In an effort to increase sales volume while adding minimal additional
SG&A throughout the Fiscal year, and in order to capitalize on the seasonal
nature of the Company's business, the Company plans to operate 10-12 seasonal
stores during the 1996 Christmas selling season.
Interest and other income for the First Quarter of Fiscal 1996 decreased to
approximately $12,300 from approximately $44,000 for the First Quarter of
Fiscal 1995 primarily as a result of reduced levels of cash due to new store
openings.
Interest expense for the First Quarter of Fiscal 1996 and for the First Quarter
of Fiscal 1995 was approximately $6,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary ongoing capital requirements are anticipated to be for
merchandise inventory purchases and to fund its ongoing operations, including
its temporary store operation and any new permanent store openings.
The Company had working capital of approximately $1.4 million and $1.8 million
at May 4, 1996 and February 3, 1996, respectively. In order to fund its
capital and operating requirements, the Company has in the past been primarily
dependent on cash proceeds received from the Company's initial public offering
in November 1994 (the "Offering") and, prior thereto, the Company was dependent
primarily on cash proceeds from sales of equity securities to David B.
Cornstein, the Company's Chairman of the Board of Directors, David F. Miller,
the Company's current President, and Edward J. Munley, the Company's former
President, each of whom is a director and founder of the Company (collectively,
the "Original Stockholders"), and on loans from others.
During the First Quarter of Fiscal 1996, cash decreased by approximately
$670,000 to approximately $717,000. The overall decrease in cash resulted
primarily from cash used in operations of approximately $654,000. The Company
repaid approximately $16,000 in indebtedness during the period.
During the First Quarter of Fiscal 1995, cash decreased by approximately
$340,000 to approximately $2,612,000. The overall decrease in cash resulted
primarily from cash used in operations of approximately $323,000. The Company
repaid approximately $11,000 in indebtedness during the period.
The Company currently does not maintain any lines of credit or cash borrowings
to finance its capital requirements. The Company maintains a $100,000
letter-of-credit to serve as collateral for primarily all of the Company's
capital lease obligations. The letter-of-credit expires in December 1996, at
which time it will be considered for renewal.
During the First Quarter of Fiscal 1996, the Company's inventories increased by
approximately $109,000 to approximately $1,087,000 from approximately $978,000
at February 3, 1996. The increase is primarily a result of the Company
adjusting inventory quantities to levels which management believes will improve
sales volume. During the First Quarter of Fiscal 1995, the Company's
inventories decreased by approximately $48,000 to approximately $597,000 from
approximately $645,000 at January 28, 1995. The decrease was primarily a
result of the Company modifying inventory quantities to appropriate seasonal
levels. The most significant inventory needs are expected to be in
November/December. Primarily all of the Company's merchandise purchases are
initially financed by trade credit and the Company generally pays for its
inventory 30-45 days after receipts. Accordingly, the Company's most
significant cash needs in payment for inventory purchases are expected to be in
December/January.
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In light of the Company's experience during the 1995 Christmas selling season,
which included the operation of three temporary stores, and in order to
capitalize on the seasonal nature of the Company's business, the Company's plan
of expansion will focus on the increased utilization of temporary stores during
the Christmas selling season. Subject to the limitations described below,
the Company plans to operate 10 to 12 temporary stores during the 1996
Christmas selling season. The average expected cost associated with the
opening of a temporary store is approximately $15,000 (excluding inventory),
which primarily includes the costs of fixtures, cash register equipment and
licensing and permitting. Expected inventory to open such temporary stores is
approximately $40,000 per store which will primarily be financed through trade
credit, although there can be no assurance that start-up costs associated with
the temporary stores will not be in excess of the Company's estimates.
Management intends to closely monitor the results of operations from the
temporary stores during the 1996 Christmas selling season and further consider
an increased expansion of its temporary store program for future Christmas
selling seasons. However, if permanent locations are identified which meet the
Company's criteria and complement the Company's expansion plan, the Company may
open additional permanent stores. The cost of leasehold improvements and
fixtures for a typical permanent store (net of landlord allowances) is
approximately $180,000. Total initial inventory cost per permanent store is
approximately $90,000.
The Company has used and expects to continue to use its cash available from
operations to finance its losses from operations and any new temporary or
permanent store expansion. At the Company's current level of operations, its
permanent stores are not generating sufficient cash flow to support its current
corporate overhead expense, and the Company anticipates operating at a net loss
for fiscal 1996. If the Company's cash flow proves insufficient to fund
operations, the cash available to the Company would not satisfy its
contemplated cash requirements for the opening of new temporary stores and may
impair the Company's ability to purchase optimal levels of inventories for the
1996 Christmas selling season, without modification to its existing plan. In
that event, the Company would be required to seek additional financing and/or
revise its plans, including making significant reductions in operating costs
and potentially reducing the levels of seasonal inventories. The Company
intends to review its present cost structure with a view toward making such
changes as management determines may be necessary in order to make it
consistent with the Company's current and reasonably foreseeable levels of
activity. The Company will monitor its performance to determine which actions
may be required to be implemented.
The Company has no current arrangements with respect to, or sources of,
additional financing, and it cannot be anticipated that any of the officers,
directors or stockholders will provide any portion of the Company's future
financing requirements. There can be no assurance that additional financing
will be available to the Company on commercially reasonable terms, or at all.
Any inability to obtain additional financing could have a materially adverse
effect on the Company, including possibly requiring the Company to
significantly curtail, and possibly causing the Company to cease, its
operations. In addition, any equity financing may involve substantial dilution
to the interests of the Company's then-existing stockholders. Further, there
can be no assurance that the Company will achieve profitability or positive
cash flow.
SEASONALITY AND QUARTERLY FLUCTUATIONS
As is the general pattern in the retail industry where disproportionately
higher sales levels are generated during the Christmas selling season, the
Company's business is, and is expected to continue to be, highly seasonal, with
a substantial portion of its revenues derived from product sales during the
months of November and December. Seasonality factors may cause the Company's
operating results to fluctuate significantly from quarter to quarter. If for
any reason the Company's sales were substantially below those normally expected
in the fourth quarter of any fiscal year, the Company's operating results for
such fiscal year would be materially adversely affected. The Company's results
of operations may also fluctuate significantly from quarter to quarter as a
result of a number of other factors, including the timing of new store openings
(and expenses incurred in connection therewith) by either the Company or its
competitors, the marketing activities of its competitors and the emergence of
new market entrants.
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TAX LOSS CARRYFORWARDS
The Company's status as an S Corporation terminated upon the consummation of
the Offering. Any pro-rata net operating losses incurred by the Company prior
to such termination are not available to offset future taxable income of the
Company.
EFFECTS OF INFLATION
Inflation has not had a material effect on the Company's operations. The
Company anticipates that it will be able to diminish the effects of
inflationary cost increases by increasing its prices.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11 Statement re Computation of Per Share Earnings (not
required because the relevant computations can be clearly
determined from material contained in the financial
statements included herein).
27 Financial Data Schedule (For SEC Use Only)
(b) Reports on Form 8-K
The following Current Report on Form 8-K regarding the
resignation of Edward J. Munley, the Company's former
President, was filed by the Company:
1) April 12, 1996 - Resignation of the Company's
President and Chief Executive
Officer.
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Signatures
In accordance with the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
What A World!, Inc.
Date: June 17, 1996 By: /s/ David F. Miller
-----------------------------
David F. Miller
President
(Principal Executive Officer)
Date: June 17, 1996 By: /s/ Anthony G. Bruno
-----------------------------
Anthony G. Bruno
Chief Financial Officer
(Principal Financial and
Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> FEB-04-1996
<PERIOD-END> MAY-04-1996
<EXCHANGE-RATE> 1
<CASH> 717,053
<SECURITIES> 0
<RECEIVABLES> 67,000
<ALLOWANCES> 0
<INVENTORY> 1,086,781
<CURRENT-ASSETS> 2,119,264
<PP&E> 2,954,014
<DEPRECIATION> 385,344
<TOTAL-ASSETS> 4,720,465
<CURRENT-LIABILITIES> 693,037
<BONDS> 0
0
0
<COMMON> 21,181
<OTHER-SE> 4,538,782
<TOTAL-LIABILITY-AND-EQUITY> 3,198,202
<SALES> 1,203,124
<TOTAL-REVENUES> 1,215,453
<CGS> 623,966
<TOTAL-COSTS> 623,966
<OTHER-EXPENSES> 1,078,203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,293
<INCOME-PRETAX> (493,009)
<INCOME-TAX> 0
<INCOME-CONTINUING> (493,009)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (493,009)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
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