UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-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 2, 1997
|_| 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)
Delaware 59-3200879
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) 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
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 20, 1997, 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
<PAGE>
WHAT A WORLD!, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item I. Financial Statements (Unaudited):
Condensed Balance Sheets - February 1, 1997 and May 2, 1997 ............ 3
Condensed Statements of Operations for the Thirteen Weeks Ended
May 4, 1996 and May 2, 1997 ............................................ 4
Condensed Statements of Cash Flows for the Thirteen Weeks Ended
May 4, 1996 and May 2, 1997 ............................................ 5
Notes to Condensed Financial Statements .................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .............................................. 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................. 10
SIGNATURES ............................................................... 11
2
<PAGE>
WHAT A WORLD!, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
February 1, May 2,
ASSETS 1997 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,294,189 $ 1,295,887
Certificate of deposit 100,000 100,000
Inventories 1,207,015 0
Prepaid expenses and other current assets 95,567 12,504
----------- -----------
Total current assets 2,696,771 1,408,391
PROPERTY AND EQUIPMENT, net 973,848 107,446
OTHER ASSETS 27,806 14,812
----------- -----------
Total assets $ 3,698,425 $ 1,530,649
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,644,387 1,342,480
Current maturities of capital lease obligations 68,156 76,801
----------- -----------
Total current liabilities 1,712,543 1,419,281
DEFERRED RENT 731,652 0
CAPITAL LEASE OBLIGATIONS 91,630 66,796
STOCKHOLDERS' EQUITY:
Common stock 21,181 21,181
Additional paid-in capital 4,538,782 4,538,782
Accumulated deficit (3,397,363) (4,515,391)
----------- -----------
Total stockholders' equity 1,162,600 44,572
----------- -----------
Total liabilities and stockholders' equity $ 3,698,425 $ 1,530,649
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
WHAT A WORLD!, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
13 Weeks Ended
May 4, 1996 May 2,1997
----------- -----------
NET SALES $ 1,203,124 $ 1,006,551
COST OF SALES 623,966 583,318
----------- -----------
GROSS PROFIT 579,158 423,233
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,078,203 873,116
----------- -----------
LOSS FROM OPERATIONS (499,045) (449,883)
LOSS FROM DISCONTINUED OPERATIONS -0- (673,411)
INTEREST AND OTHER INCOME 12,329 11,442
INTEREST EXPENSE (6,293) (6,176)
----------- -----------
6,036 5,266
----------- -----------
NET LOSS $ (493,009) $(1,118,028)
=========== ===========
NET LOSS PER WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARE $ (.23) $ (.53)
=========== ===========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 2,118,125 2,118,125
The accompanying notes are an integral part of these statements.
4
<PAGE>
WHAT A WORLD!, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
13 Weeks Ended
May 4, 1996 May 2,1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (493,009) $(1,118,028)
Adjustments to reconcile net loss to net cash and
cash equivalents used in operating activities-
Depreciation and amortization 85,085 886,402
Changes in operating assets and liabilities-
Decrease in construction allowance
receivable 200,000 -0-
Decrease (increase) in inventories (108,552) 1,207,015
(Increase) decrease in prepaid expenses
and other current assets 31,399 83,063
Decrease (increase) in other assets (7,438) 12,994
Decrease in accounts payable and
accrued expenses (406,104) (301,907)
Increase (decrease) in deferred rent 44,886 (731,652)
----------- -----------
Net cash and cash equivalents (used)
required in operating activities (653,733) 17,887
FINANCING ACTIVITIES:
Payments made on capital lease obligations (16,212) (16,189)
----------- -----------
Net cash and cash equivalents used
in financing activities (16,212) (16,189)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (669,945) 1,698
CASH AND CASH EQUIVALENTS, beginning of period 1,386,998 1,294,189
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 717,053 $ 1,295,887
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 6,137 $ 6,176
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
WHAT A WORLD!, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
May 2, 1997
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 l0-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 1, 1997,
which are included in the Company's Annual Report on Form l0-KSB filed on May
16, 1997.
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 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, resulted in a
total of 560,000 shares of common stock available for grant under the Stock
Option Plan.
As of May 2, 1997, 520,000 options were outstanding under the Stock Option Plan.
6
<PAGE>
3. DISCONTINUED OPERATIONS:
In February 1997, the Company's Board of Directors approved the sale of
substantially all the Company's operating assets and to discontinue the
Company's retail business.
The Company operated its chain of mall-based specialty gift retail stores until
March 10, 1997. On March 7, 1997, the Company and Natural Wonders, Inc. (the
"Buyer") entered into an Asset Purchase Agreement ("Sale Agreement") pursuant to
which the Company agreed, subject to stockholder approval, to transfer to the
Buyer substantially all of its operating assets (including specified
inventories, fixed assets and tangible personal property, intangible personal
property and contract rights and store leases) in consideration for the payment
by Buyer of approximately $500,000 in cash, subject to certain adjustments, and
the assumption by the Buyer of certain liabilities (including the Company's
store leases) (the "Sale"). In addition, in order to immediately implement the
benefits of the Sale Agreement (and to reduce operating losses which were
continuing to be incurred by the Company), the Company and the Buyer entered
into an agreement, effective March 10, 1997 through the closing of the Sale
Agreement, pursuant to which the Buyer began to operate the Company's specialty
gift retail business. The Buyer agreed to fund certain costs, expenses and
liabilities associated with the operation of the Company during the term of such
agreement. On May 22, 1997, the stockholders approved the Sale transaction and
the Sale was completed.
The net losses of the retail operations of the Company for the period from March
10, 1997 through May 2, 1997 are included in the consolidated statement of
income under "Loss From Discontinued Operations". The provision for the loss
reflected in the consolidated statement of income includes the write-down of the
assets of the retail operations to the net realizable values and the cost of
disposing of these operations.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
On May 22, 1997, at a special meeting of the Company's stockholders to vote upon
the sale of substantially all the operating assets of the Company (the "Sale")
to Natural Wonders, Inc. (the "Buyer"), the Sale was approved by more than a
majority of the outstanding shares and the closing of the Sale took place on the
same day. Under the terms of the Sale, the Buyer was required to pay the Company
$500,000, subject to certain adjustments, in return for substantially all the
operating assets of the Company and the Buyer was required to assume certain
liabilities of the Company, including liabilities relating to all the store
leases. For accounting purposes, at May 2, 1997, the Company recognized $517,795
in cash and wrote down inventory by $1,009,000, fixed assets by $853,348, store
supplies (other current assets) by $47,516, and organizational costs (other
assets) by $12,994. The Company also reversed the $731,652 of deferred rent
liability that relates to the leases that were assigned. The Sale resulted in a
loss from discontinued operations of $673,411.
The description contained herein of the Sale transaction is qualified in its
entirety by reference to the agreements included as exhibits hereto and
incorporated herein by reference.
The Company was organized in July 1993 and opened its first store in August
1993. All of the Company's twelve stores were in operation for over one year.
Consummation of the Sale terminated the Company's specialty retail operations.
The Company presently has no operating business (and has only two employees).
The Company intends to look for acquisition candidates for a new business for
the Company. Accordingly, the Company has a limited operating history upon which
an evaluation of its performance and prospects can be made.
The Company will explore any opportunities which arise in the future which it
believes are in the best interests of the Company's stockholders. Such
opportunities include selling the stock of the Company to raise capital to make
an acquisition or to merge with a privately-held company. Any such acquisition
would depend on the availability of attractive acquisition candidates and the
Company's ability to finance any such acquisition. The Company has not
identified any acquisition candidates or the availability of financing
arrangements and there can be no assurance that any acquisition will be
accomplished.
The Company has used cash proceeds from the Sale to repay debt, fund
transactional expenses and pay ongoing general and administrative costs. The
Company may use the remainder of the net proceeds, if any, for general corporate
purposes and to seek acquisition candidates, as yet unidentified.
The Company's future operations are subject to various risk factors including
the following: funds available to the Company may not be adequate for it to
acquire an interest in any chosen property, business or opportunity and there is
no assurance funds will be available from any source and, if not available, the
Company will limit its operations to those that can be financed from existing
assets; any business activity the Company undertakes may require substantial
capital which may be difficult to obtain or not available in light of the
Company's financial condition; the Company presently has no business to generate
income; the Company has no operating history in any new line business and there
can be no assurance that any future activities will be profitable; the success
of the Company will depend on the operations, financial condition and management
of the company or companies, if any, with which the Company may merge or which
it may acquire; the consummation of a business combination may involve a change
in officers and directors of the Company, and the issuance of securities of the
Company to stockholders of any target concern would result in substantial
dilution to present stockholders of the Company and may result in stockholders
of a target company obtaining a controlling interest in the Company; the loss of
part or of the entirety of the Company's management could have a material
adverse effect on the viability of the Company; any specific business
opportunity may involve an unproven product, technology or marketing strategy
the ultimate success of which cannot be assured; conflicts of interest may arise
with respect to business activities since directors and officers of the Company
may be affiliated with businesses which may in the future engage in various
transactions with the Company; the Company may engage outside advisors in order
to supplement the business experience of the Company's management; management
does not anticipate that the Company will pay dividends in the foreseeable
future; other entities have significantly greater financial resources, technical
expertise and managerial capabilities than the Company and consequently the
Company is at a competitive disadvantage in identifying possible merger or
acquisition candidates; there can be no assurance the Company will be successful
in identifying and evaluating suitable merger or acquisition candidates and in
concluding a transaction on terms favorable to the Company or, if concluded,
whether any transaction will result in a financial return to the Company's
stockholders; the Company has not engaged in market research to determine that
demand exists for a merger or acquisition transaction with the Company; the
Company may be unable to diversify and the Company may be subject to economic
fluctuations within a particular business or industry; the Board of Directors
has the power to issue shares of common stock, and any additional issuance would
have the effect of further reducing the percentage ownership of existing
stockholders; and the Company, in the event it engages in business combinations
which result in it holding passive investment interests in a number of entities,
could be subject to regulation under the Investment Company Act of 1940 and any
violation of such Act would subject the Company to material adverse
consequences.
Results of Operations
This Quarterly Report on Form l0-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.
Thirteen Weeks Ended May 2, 1997 Compared to the Thirteen Weeks Ended May 4,
1996
Net sales for the 13 weeks ended May 2, 1997 (the "First Quarter of Fiscal
1997") decreased by approximately $197,000, or 16% over net sales for the
comparable 13 weeks ended May 4, 1996 (the "First Quarter of Fiscal 1996"). The
decrease is principally a result of the Company's lack of resources to support
sales through inventory replenishment.
Gross profit for the First Quarter of Fiscal 1997 was approximately $423,000 or
42.0% of net sales, compared with approximately $579,000 or 48.1% of net sales
for the First Quarter of Fiscal 1996. 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 increase sales while reducing
the Company's inventory in light of the then-impending Sale transaction.
Selling, general and administrative expenses ("SG&A") for the First Quarter of
Fiscal 1997 decreased to approximately $721,000 from approximately $1,078,000
for the First Quarter of Fiscal 1996. The primary components of SG&A were store
occupancy costs (which included 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 decrease in SG&A was, for the most part, the
result of decreases in store operating expenses and corporate office expense
reductions due to the then-impending Sale transaction.
8
<PAGE>
Interest and other income for the First Quarter of Fiscal 1997 decreased to
approximately $11,000 from approximately $12,000 for the First Quarter of Fiscal
1996 primarily as a result of reduced levels of cash due to operating losses.
Interest expense for the First Quarter of Fiscal 1997 and for the First Quarter
of Fiscal 1996 was approximately $6,000.
Liquidity and Capital Resources
The Company's primary ongoing capital requirements are anticipated to be for
funding its limited operations and exploring any opportunities to effect an
acquisition, whether by merger, exchange of capital stock or other business
combination. There can be no assurance that any such transaction will be
effected. In view of the limited resources of the Company, consideration may be
given to additional equity or debt placement to fund merger and acquisition
activities as well as to fund working capital for general corporate purposes
that might be required to effectuate the Company's business objective.
The Company had working capital of approximately ($11,000) and $1 million at May
2, 1997 and February 1, 1997, respectively. In order to fund its capital and
operating requirements, the Company had in the past been primarily dependent (i)
on cash proceeds received from loans from certain members of the Board of
Directors, from the Company's initial public offering in November 1994 (the
"Offering") and, prior thereto, 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 (ii) on loans from others. The Company has
used cash proceeds from the Sale to repay debt, fund transactional expenses and
pay ongoing general and administrative costs. The Company may use the remainder
of the net proceeds, if any, for general corporate purposes and to seek
acquisition candidates, as yet unidentified.
During the First Quarter of Fiscal 1997, cash increased by approximately $2,000
to approximately $1,296,000. The overall increase in cash resulted primarily
from the Company's accounting for the receipt of the proceeds of the Sale as if
it had occurred in the First Quarter of Fiscal 1997. The Company repaid
approximately $16,000 in indebtedness during the period.
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.
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.
During the First Quarter of Fiscal 1997, the Company's inventories decreased by
approximately $1,207,000 to $0 from approximately $1,207,000 at February 1,
1997. The decrease is primarily a result of the Company's accounting for the
sale of $1,009,000 of inventory to the Buyer in the First Quarter of 1997.
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 believed might
improve sales volume.
The Company has used and expects to continue to use, to the extent available,
any remaining cash which was generated from operations and the Sale to finance
its losses from its remaining limited operations. The Company is not presently
generating any cash flow to support its current corporate overhead expense and
anticipates operating at a net loss for fiscal 1997.
9
<PAGE>
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 causing the Company to cease all operations.
Any equity financing may involve substantial dilution to the interests of the
Company's then-existing stockholders. Further, there can be no assurance that,
even if the Company effectuates a business combination, the Company will achieve
profitability or positive cash flow.
Effects of Inflation
Inflation has not had a material effect on the Company's operations.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Asset Purchase Agreement dated March 7, 1997 by and between
Registrant and Natural Wonders, Inc. (incorporated by
reference to Exhibit 10.11 to Registrant's Annual Report on
Form 10-KSB, as amended, as filed with the Securities and
Exchange Commission in May 1997).
10.2 Form of Shareholder Lock-up Agreement dated March 7, 1997 by
each of David B. Cornstein, David F. Miller, and Edward J.
Munley (incorporated by reference to Exhibit 10.12 to
Registrant's Annual Report on Form 10- KSB, as amended, as
filed with the Securities and Exchange Commission in May
1997).
10.3 Management Agreement dated March 7, 1997 between the
Registrant and Natural Wonders, Inc. (incorporated by
reference to Exhibit 10.13 to Registrant's Annual Report on
Form 10-KSB, as amended, as filed with the Securities and
Exchange Commission in May 1997).
10.4 Form of Non-Competition Agreement dated March 7, 1997 by David
B. Cornstein and David F. Miller (incorporated by reference to
Exhibit 10.14 to Registrant's Annual Report on Form 10-KSB, as
amended, as filed with the Securities and Exchange Commission
in May 1997).
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 Company filed with the Securities and Exchange Commission
on June 6, 1997 a Current Report on Form 8-K regarding the
Sale transaction, which included a reference to the financial
statements set forth in the Company's Proxy Statement dated
May 2, 1997, as filed with the Securities and Exchange
Commission.
10
<PAGE>
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 20, 1997 By: /s/ David F. Miller
----------------------------
David F. Miller
President
(Principal Executive Officer)
Date: June 20, 1997 By: /s/ Brian S. Lappin
----------------------------
Brian S. Lappin
Vice President of Finance
(Principal Financial and
Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-02-1997
<CASH> 1,295,887
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,408,391
<PP&E> 3,133,406
<DEPRECIATION> 2,172,612
<TOTAL-ASSETS> 1,530,649
<CURRENT-LIABILITIES> 1,419,281
<BONDS> 0
0
0
<COMMON> 21,181
<OTHER-SE> 4,538,782
<TOTAL-LIABILITY-AND-EQUITY> 1,530,649
<SALES> 1,006,551
<TOTAL-REVENUES> 1,017,993
<CGS> 583,318
<TOTAL-COSTS> 583,318
<OTHER-EXPENSES> 873,116
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,176
<INCOME-PRETAX> (449,883)
<INCOME-TAX> 0
<INCOME-CONTINUING> (449,883)
<DISCONTINUED> (673,411)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,118,028)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> (.53)
</TABLE>
