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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(AMENDMENT NO. 1)
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1998
[ ] 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.
(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 No.)
P.O. Box 20125
Tampa, Florida 33622-0125
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (813) 577-9366
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Title of Each Class Registered: Common Stock, par value $.01:
- -------------------------------- Redeemable Warrants, each to purchase one
share of Common Stock
Check whether the issuer (1) filed all reports required by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $-0-
The aggregate market value of the voting stock held by
non-affiliates of the Registrant (based on the price the
stock closed at on May 11, 1998) was approximately $595,723.
The number of shares outstanding of the registrant's Common
Stock, par value $.01 per share, as of May 12, 1998 was 2,118,125
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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Explanatory Note
What A World!, Inc. (the "Company") is filing this Amendment No. 1 on
Form 10-KSB/A ("Amendment No. 1") to the Company's Annual Report on Form 10-KSB
for the fiscal year ended January 31, 1998 (the "Original Form 10-KSB") in order
to amend and restate in its entirety Item 1. "Description of Business", Item 6.
"Management's Discussion and Analysis", Item 7. "Financial Statements",
including footnotes, and Item 13. "Exhibits, List and Reports on Form 8-K". No
portions of the Original Form 10-KSB other than the items mentioned in this
explanatory note are amended by this Amendment No. 1.
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ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
What A World!, Inc. (the "Company") was incorporated under the laws of
the State of Delaware in July 1993 and, until May 1997, operated as a mall-based
specialty retailer of a wide assortment of products which targeted customers
having an active interest in nature, the environment, education, wildlife, the
outdoors and science. On May 22, 1997, at a special meeting of stockholders of
the Company 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
paid the Company $500,000, subject to certain adjustments, in return for
substantially all the operating assets of the Company and the Buyer assumed
certain liabilities of the Company, including liabilities relating to all the
store leases. As a result of the Sale and subsequent disposal of assets in
conjunction with the Sale, for accounting purposes, during the thirteen weeks
ended May 2, 1997 (the "First Quarter of Fiscal 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 disposal of assets of $673,411. Subsequently, during
the thirteen weeks ended August 2, 1997 (the "Second Quarter of Fiscal 1997"),
the Company recorded a change in the estimate of its accounts payable balance to
better reflect the realizable value related to the disposal of assets as a
result of the Company's having negotiated debt concessions with substantially
all of its vendors and a lessor, resulting in a gain on disposal of assets for
the Second Quarter of Fiscal 1997 of $279,670. The gain on disposal of assets
for the Second Quarter of Fiscal 1997 was a one time, non-recurring revaluation
and similar results and adjustments can not be expected to recur. The total
loss on disposal of assets and adjustment to net realizable value of accounts
payable and capital lease obligations as a result of the Sale for the Twenty Six
Weeks ended August 2, 1997 was $393,741. There was no additional activity
regarding disposal of assets and adjustment to net realizable value of accounts
payable and capital lease obligations for the third or fourth quarters of fiscal
1997. Under the accounting rules governing discontinued operations, which
considers all operations as discontinued operations following the Company's
Board of Directors' decision to discontinue the specialty retail operation, the
Company incurred a loss on discontinued operations, including the aforementioned
loss on disposal of assets and adjustment to net realizable value of accounts
payable and capital lease obligations, for the year ended January 31, 1998 of
$901,927.
The assets transferred to the Buyer included all good and salable inventory
of the Company, fixed assets and tangible personal property located at each of
the Company's retail store locations (the "Leased Properties") and the
Company's warehouse (including store fixtures, furniture, lighting fixtures,
and all store supplies), intangible personal property (including deposits and
prepaid expenses, vendor lists, customer lists, customer files, customer
records, licenses and permits susceptible of transfer under regulatory agency
rules) and contract rights relating to the operation and maintenance of the
Leased Properties. Excluded assets included, among other assets, cash, a
certificate of deposit, a portion of the Company's inventory and other
miscellaneous property, including its corporate office and distribution center.
Assumed liabilities included certain obligations of the Company under its store
leases (the "store leases"). The Buyer assumed all liabilities under the store
leases arising on or after May 22, 1998 (the "Closing Date"), regardless of
whether or not the Company was able to obtain the requisite consent to
assignment of any one or more of the store leases. Liabilities not assumed by
the Buyer included, among other liabilities, accounts payable, accrued prior to
(but unpaid as of) March 10, 1997, expenses, long term debt, computer equipment
lease, certain severance obligations and other minor liabilities.
The Sale Agreement contained various representations and warranties of the
Company including, among others, representations and warranties related to
organization and similar corporate matters; authorization,
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performance, enforceability and related matters; requisite consents; the
accuracy of financial statements and other financial information provided to
the Buyer; undisclosed liabilities; taxes; litigation; ownership, condition and
title to assets and properties; inventories; personal property; contracts; real
property; warranties and guarantees; personnel; employee benefit plans; absence
of certain changes; compliance with applicable laws and environmental matters;
licenses and permits; insurance; absence of brokers; employee and labor
relations; corporate names and proprietary rights; and the disclosure in the
Sale Agreement regarding representations and warranties of the Company. The
Sale Agreement contained various representations and warranties of the Buyer
including, among others, representations and warranties related to organization
and similar corporate matters; authorization, performance, enforceability and
related matters; requisite consents and absence of brokers. The
representations and warranties survive the Closing for a period of two years
from the Closing Date or until expiration of the applicable statutes of
limitations in respect of tax matters and litigation. With respect to the
Buyer's assumption of the liabilities, such obligation shall survive for so
long as there remain outstanding obligations under any of the assumed
liabilities.
The Company agreed to indemnify the Buyer from and against damages arising
out of or based upon (i) the breach by the Company of any representation or
warranty made by the Company pursuant to the Sale Agreement; (ii) the
non-performance of any covenant made by it pursuant to the Sale Agreement;
(iii) any activities of the Company prior to the Closing; (iv) liabilities under
any employee benefit plans of the Company; (v) any claims for brokers' fees;
(vi) any liabilities arising from the failure to comply with applicable bulk
transfer laws; and (vii) any other liabilities of the Company not assumed by
the Buyer. The Buyer agreed to indemnify the Company from and against damages
which arise out of or are based upon (i) the breach by the Buyer of any
representation or warranty made by the Buyer pursuant to the Sale Agreement;
(ii) any claims for brokers' fees; (iii) the non-performance of any covenant
made by it pursuant to the Sale Agreement; or (iv) the failure to satisfy any
of the assumed liabilities. Pursuant to the Sale Agreement, neither party
shall be obligated to indemnify the other thereunder unless and until the
aggregate amount of the other party's damages exceeds $10,000.
The description contained herein of the Sale transaction is qualified in its
entirety by reference to the agreements included as exhibits to the 10-QSB for
the period ended May 2, 1997, as filed with the Securities and Exchange
Commission on June 20, 1997, and incorporated herein by reference.
Consummation of the Sale terminated the Company's specialty retail
operations. The Company presently has no operating business. 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 merging 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. There can be no assurance
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 intends to use the remainder of the net proceeds for general corporate
purposes and to seek acquisition candidates.
BUSINESS OF POST-SALE WHAT A WORLD!, INC.
Since the Sale, the Company has been seeking to serve as a vehicle to
effect acquisitions, whether by merger, exchange of capital stock, acquisition
of assets or other similar business combination (a "Business Combination") with
an operating business (an "Acquired Business"). The objective of the Company
since the Sale has been to effect a Business Combination with an Acquired
Business which the Company believes has significant growth potential. The
Company currently intends to seek to utilize cash, equity, debt or a combination
thereof in effecting a Business Combination. While the Company may, under
certain circumstances, explore possible Business Combinations with more than one
prospective Acquired Business, in all likelihood, until other financing provides
additional funds, or its
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stature matures, the Company may be able to effect only a single Business
Combination, in accordance with its business objectives, although there can be
no assurance that any such transaction will be effected.
Since the Sale, the Company has not entered into any agreements with any
potential Acquired Businesses regarding a Business Combination. No assurance can
be made that any transaction will be consummated or that future discussions with
any potential Acquired Businesses will result in definitive agreements, although
it is the Company's intention to proceed diligently with its business plan.
In view of the limited tangible net worth of the Company, consideration may
be given to additional private equity or debt placement to fund its possible
merger and acquisition activities as well as to fund working capital for general
corporate purposes that might be required to effectuate the business plan.
It is anticipated that, in the event a Business Combination is effected,
the Company would use cash, equity, debt or a combination of these to achieve a
Business Combination.
The Company may borrow funds to increase the amount of capital available
for a Business Combination or otherwise finance the operation of the Acquired
Business. The amount and nature of any borrowings by the Company will depend on
numerous considerations including its capital requirements, its perceived
ability to service such debt and prevailing conditions in the financial markets
and the general economy.
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 be 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 of 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 of 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 interests 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
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stockholders; and the Company, in the event it engages in business combinations
which result in it holding passive investments 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.
This Annual Report on Form 10-KSB 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 factors described in the foregoing paragraph.
BUSINESS OF PRE-SALE WHAT A WORLD!, INC.
Until May 1997, the Company operated as a mall-based specialty retailer of
a wide assortment of products which targeted customers having an active interest
in nature, the environment, education, wildlife, the outdoors and science. The
merchandise offered by the Company included outdoor and garden merchandise,
recorded nature music, videotapes, statuary, telescopes, books, games and
puzzles and apparel, all of which emphasized nature, environmental, scientific
and/or educational themes. In May 1997, pursuant to an Asset Purchase Agreement
dated as of March 7, 1997 (the "Sale Agreement") between the Company and the
Buyer, the Company sold substantially all of its assets to the Buyer for an
aggregate cash consideration of $517,795 plus the assumption by the Buyer of
certain liabilities. In conjunction with the Sale Agreement and 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 operated
the Company's specialty retail gift business (the "Management Agreement").
The Company opened its first store in August 1993 and, until the Sale,
operated twelve stores, which were located in major regional malls in Florida
(Bradenton, Clearwater, Jacksonville, Jensen Beach, Miami (two), Ocala, Orlando,
Tallahassee and Tampa), New York (Staten Island) and New Jersey (Eatontown). In
addition, the Company operated thirteen temporary holiday outlets in Florida,
Georgia and South Carolina during the 1996 Christmas selling season. The
Company's permanent stores generally ranged in size from approximately 2,200 to
3,300 square feet of space.
In November 1994, the Company completed its initial public offering (the
"Offering") whereby 1,000,000 shares of Common Stock and 1,150,000 Warrants were
sold. (See "Item 12 - Certain Relationships and Related Transactions - Warrant
Extensions.")
BUSINESS STRATEGY
Prior to the Sale, the Company's strategy had been to provide an
interactive, unique gift store environment which generated a sense of discovery
for its customers. All of the Company's stores operated for the period February
2, 1997 through May 22, 1997 (the date of the Sale to the Buyer.). Each store
typically stocked over 3,000 different items and offered products, at prices
generally ranging from $3 to $500, from the following merchandise categories:
home products, outdoor and gardening products, music and video items, statuary,
optical instruments, educational items, toys and games, rocks and minerals, and
apparel. All categories emphasized nature, environmental, scientific and/or
educational themes.
STORE OPERATIONS
Prior to the Sale, the Company's stores generally ranged in size from
approximately 2,200 to 3,300 square feet of space. The Company's stores had been
open seven days a week during mall operating hours. Stores were typically
staffed with a manager, an assistant manager and several full-time and part-time
sales associates, the number of which varied depending on store volume. Store
management
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received compensation in the form of salaries and performance-based bonuses,
while sales associates were paid on an hourly basis plus performance incentives.
PURCHASING AND INVENTORY
Prior to the Sale, the Company purchased merchandise from over 250
suppliers, including manufacturers, distributors, craftsmen and importers.
Although certain suppliers may have provided a majority or all of the Company's
requirements for a particular product or category during the year ended January
31, 1998 (fiscal 1997), no supplier accounted for more than 5.0% of the
Company's total merchandise purchases during such period. In fiscal 1997, 100%
of the Company's merchandise was purchased from domestic vendors. The Company
currently maintains no working relationship with any of its inventory vendors as
all debts of the Company thereto have been satisfied.
PROMOTIONAL ACTIVITIES
Prior to the Sale, the Company did not rely on advertising to generate
sales but, rather, was substantially dependent upon mall traffic to attract new
customers.
COMPETITION
The specialty retail business is characterized by intense competition. The
Company believes that prior to the Sale it had competed with various retailers,
including Natural Wonders, Inc., The Nature Company, a subsidiary of CML Group,
Inc., and World of Science, Inc., each of which operates numerous nature and
science specialty stores.
PERSONNEL
Pursuant to the Sale Agreement and the Management Agreement, certain
employees of the Company had been retained by the Buyer and were evaluated by
the Buyer in accordance with its requirements. A significant portion of benefits
that had accrued prior to March 9, 1997 to then-current employees were paid by
the Company. Prior to the Sale, the Company had approximately 39 full-time
employees and 50 part-time sales associates. Store management received
compensation in the form of salaries and performance-based bonuses. Sales
associates typically were paid on an hourly basis plus performance incentives. A
number of programs were offered as incentives to both management and sales
associates to increase sales, including various sales contests. None of the
Company's employees were covered by any collective bargaining agreement. The
Company currently has one employee, its Vice President of Finance, who renders
his services on a part-time basis to the Company.
SERVICE MARK
The Company intends to retain its federal service mark registration for the
What A World(R) name and the Company's design and logo. The Company believes
that its service marks have value. There can be no assurance that the Company's
marks would be upheld if challenged or that the Company would not be prevented
by third parties (other than Natural Wonders) from using its mark, which could
have an adverse effect on the Company. In addition, the Company is prevented by
the Sale Agreement from using its marks in a retail segment in competition with
the Buyer. Moreover, there can be no assurance that the Company will have the
financial resources necessary to enforce or defend its service marks. The
Company is not aware of any claims of infringement or other challenges to the
Company's right to use its marks in the United States.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's results of
operations, liquidity and financial condition should be read in conjunction
with the Financial Statements of the Company as amended hereto.
GENERAL
The Company was organized in July 1993 and opened its first permanent store
in August 1993. All of the Company's twelve stores had been in operation until
May 22, 1997, the date of the Sale. Consummation of the Sale terminated the
Company's specialty retail operations. The Company presently has no operating
business. 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 fiscal year ended January 31, 1998 ("Fiscal 1997") and the fiscal year
ended February 1, 1997 ("Fiscal 1996") included 52 weeks of operations. The
quarterly period ended January 31, 1998 (the "Fourth Quarter of Fiscal 1997")
and the quarterly period ended February 1, 1997 (the "Fourth Quarter of Fiscal
1996") included 13 weeks of operations.
The Company did not operate any stores at January 31, 1998 due to the Sale,
but operated 12 stores for the period February 2, 1997 through May 22, 1997.
The stores were operated under the Management Agreement for the period of March
10, 1997 through May 22, 1997. The Company operated 12 stores at February 1,
1997 and throughout the entire fiscal year of 1996. The Company did not
operate any temporary stores in the Fourth Quarter of Fiscal 1997 as compared
to operating 13 temporary stores during the Fourth Quarter of Fiscal 1996.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
General and administrative expenses ("G&A") decreased to approximately
$74,000 in the Fourth Quarter of Fiscal 1997 and to approximately $215,000 for
the 52 weeks of Fiscal 1997 from approximately $79,000 and $224,000 for the
Fourth Quarter of Fiscal 1996 and the 52 weeks of Fiscal 1996, respectively (as
restated). The primary components of G&A are miscellaneous corporate overhead
expenses, including insurance, transfer agent and printing fees, professional
fees, and wages (including fringe). The decreases in G&A for the Fourth Quarter
of Fiscal 1997 and Fiscal 1997 as compared to the restated amounts for the
Fourth Quarter of Fiscal 1996 and Fiscal 1996 was, for the most part, the result
of the reduction of expenses following the Sale.
DISCONTINUED OPERATIONS
For purposes of accounting for the Sale and the resulting presentation
as discontinued operations, the Company is treating all activity which related
to the support and operation of the Company's specialty retail operation as
discontinued operations, including restating the Fiscal 1996 results to create
comparable periods. The loss from discontinued operations was $0 in the Fourth
Quarter of Fiscal 1997 and approximately $508,000 for the 52 weeks of Fiscal
1997 as compared to approximately $1,130,000 and $2,305,000 for the restated
Fourth Quarter of Fiscal 1996 and the restated 52 weeks of Fiscal 1996,
respectively (as restated). The primary components of discontinued operations
include net sales, cost of sales, selling expenses, certain general and
administrative expenses (expenses that ceased in conjunction with the Sale which
had related to the support and operation of the Company's specialty retail
business), loss on impairment, interest and other income, and interest expense.
The reductions in
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discontinued operations for the comparable fiscal years were, for the most
part, the result of the reduction of activity, as a result of the Sale of the
Company, which had resulted in losses throughout Fiscal 1996 and Fiscal 1997.
The Company also recorded a loss on the Sale transaction and writedown
to the net realizable value of certain accounts payable and capital lease
obligations of approximately $394,000 for Fiscal 1997 as compared to $0 for
Fiscal 1996.
Net loss of approximately $1,117,000 was recorded for Fiscal Year 1997
as compared to a net loss of approximately $2,529,000 recorded for Fiscal 1996.
The decrease in net loss is primarily a result of the Company discontinuing its
specialty retail operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary ongoing capital requirements are anticipated to be
for funding 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 $45,000 and $985,000 at
January 31, 1998 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 will use the remainder of the net proceeds for general corporate
purposes and to seek acquisition candidates.
During Fiscal 1997, cash decreased by approximately $1,163,000 to
approximately $131,000. The overall decrease in cash resulted primarily from
the Company's repayment of debt, its satisfaction of a majority of its
liabilities following the receipt of the proceeds from the Sale, and the loss
of the Company's main source of cash flow as a result of the Company's
discontinuing its retail operations. The Company repaid approximately $157,000
in indebtedness during the period.
During Fiscal 1996, cash decreased by approximately $93,000 to
approximately $1,294,000. The overall decrease in cash resulted primarily from
cash used for the purchases of property and equipment used in the temporary
stores of approximately $196,000. The Company repaid approximately $62,000 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 had maintained a
$100,000 letter-of-credit to serve as collateral for primarily all of the
Company's capital lease obligations. The letter-of-credit expired in November
1997 as a result of the Sale.
During Fiscal 1997, the Company's inventories decreased to $0 from
approximately $1,207,000 at February 1, 1997. The decrease is primarily a
result of the Sale transaction and the Company's discontinuing its retail
operations in the second quarter of Fiscal 1997.
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During Fiscal 1996, the Company's inventories increased by approximately
$229,000 to approximately $1,207,000 from approximately $978,000 at February 3,
1996. The increase was primarily a result of the Company retaining unsold
inventory from the seasonal temporary stores.
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 expenses.
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, even if the Company effectuates a business
combination, the Company will achieve profitability or positive cash flow.
ITEM 7. FINANCIAL STATEMENTS
Financial statements are set forth in a separate section of this
Amendment No. 1.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
A. (1) The following financial statements of the Company and the reports
thereon of Kirkland, Russ, Murphy, & Tapp dated May 13, 1998 and Arthur
Andersen LLP dated March 29, 1997 are being filed as part of this Annual Report
on Form 10-KSB.
Independent auditors' reports.
Balance Sheet as of January 31, 1998.
Statements of Operations and accumulated deficit for the year ended
February 1, 1997 and for the year ended January 31, 1998.
Statements of Cash Flows for the year ended February 1, 1997 and for
the year ended January 31, 1998.
Notes to Financial Statements
(2) The following exhibits are filed as part of this report (all
exhibits, except those marked with an asterisk, have been previously
filed with the Commission as indicated and are incorporated herein by
this reference):
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
1.1 Underwriting Agreement between Registrant and Whale Securities Co., L.P. and Selected
Dealer Agreement. (incorporated by reference to exhibit 1.1 of the Registrant's Form 10-
KSB for the year ended December 31, 1994 as filed with the Securities and Exchange
Commission (the "1994 Form 10-KSB")).
3.1 Certificate of Incorporation of Registrant, as amended (incorporated by reference from
Exhibit 1.1 of the Registrant's Registration Statement on Form SB-2, (Commission No.33-
84774) as filed with the Securities and Exchange Commission (the "SB-2")).
3.2 By-Laws of Registrant (incorporated by reference to exhibit 3.2 of the SB-2).
3.2.A Restated By-Laws of Registrant (incorporated by reference to exhibit 3.2A of the SB-2).
4.1 Form of Certificate for Common Stock (incorporated by reference to exhibit 4.1 of the SB-
2).
4.2 Public Warrant Agreement between the Registrant, American Stock Transfer & Trust Company
and Whale Securities Co., L.P. (incorporated by reference).
4.3 Form of Public Warrant Certificate (incorporated by reference to exhibit 4.3 of the SB-2).
4.4 Underwriter's Warrant Agreement (incorporated by reference to exhibit 4.4 of the SB-2).
10.1 Agreement among the Registrant, Edward J. Munley, David B. Cornstein, David Miller and the
other parties thereto, dated as of July 21, 1993, together with amendments to said
Agreement (incorporated by reference to exhibit 10.1 of the SB-2).
10.2 Employment Agreement with Edward J. Munley dated as of November 8, 1994 (incorporated by
reference to exhibit 10.3 of the SB-2).
10.3 Consulting Agreement between the Registrant and the Whale Securities Co., L.P.
(incorporated by reference to exhibit 10.11 of the SB-2).
10.4 1994 Stock Option Plan (incorporated by reference to exhibit 10.12 of the SB-2).
10.5 Letter agreement dated October 3, 1994 by and among the Registrant, David B. Cornstein,
David F. Miller and Edward J. Munley (incorporated by reference to exhibit 10.17 of the SB-
2).
10.6 Agreement dated as of September 8, 1994 by and among the Registrant, Edward J. Munley,
David B. Cornstein and David F. Miller in respect of contribution of shares to the
Registrant (incorporated by reference to exhibit 10.19 of the SB-2).
10.7 Equipment Lease Agreement, dated December 2, 1994, between the Company and Wasco Funding
Corporation. (incorporated by reference to exhibit 10.21 of the SB-2).
10.8 Form of Seasonal Secured Revolving Note dated August 28, 1996 in favor of each of David B.
Cornstein, Hugh H. Jones, Jr. and David F. Miller. (incorporated by reference to the
Registrants Form 10-Q for the Quarter ended August 3, 1996 as filed September 17, 1996
(the "Third Quarter 1996 10-Q" )).
10.9 Form of Warrant and Registration Agreement dated as of August 28, 1996 in favor of each of
David B. Cornstein, Hugh H. Jones, Jr. and David F. Miller. (incorporated by reference to
the Third Quarter 1996 10-Q).
10.10 Security Agreement dated as of August 28, 1996 in respect of Seasonal Secured Revolving
Notes (incorporated by reference to the Third Quarter 1996 10-Q).
10.11 Asset Purchase Agreement dated as of March 7, 1997 between the Registrant and Natural
Wonders, Inc. (incorporated by reference to the Registrant's Form 10-KSB for the fiscal
year ended February 1, 1997 as filed May 16, 1997 (the "Fiscal 1996 10-KSB")).
10.12 Management Agreement dated March 7, 1997 between the Registrant and Natural Wonders,
Inc. (incorporated by reference to the Fiscal 1996 10-KSB).
10.13 Form of Non Competition Agreement dated March 7, 1997 by David B. Cornstein and David F.
Miller (incorporated by reference to the Fiscal 1996 10-KSB).
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).
</TABLE>
8
<PAGE> 12
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
16 Letter dated May 13, 1998 from Arthur Andersen LLP in regard to their review of the Current
Report on Form 8-K dated May 14, 1998 which reports the dismissal of Arthur Andersen as the
Registrant's independent certified public accountants (incorporated by reference from
Exhibit 1 of the Current Report on Form 8-K dated May 14, 1998 as filed with the Securities
and Exchange Commission).
27* Financial Data Schedule (For SEC Use Only)
</TABLE>
*Amended Financial Data Schedule filed with this Amendment No. 1.
B. No reports on Form 8-K were filed with the Securities and Exchange
Commission during the fourth quarter of fiscal 1997.
9
<PAGE> 13
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.
What A World!, Inc.
By: /s/ David F. Miller 5/28/98
---------------------------------- ----------------------
David F. Miller Date
President
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 dates indicated.
/s/ David F. Miller 5/28/98
- --------------------------------------------------------------- -----------
David F. Miller, President, Secretary, and Director Date
(Principal Executive Officer)
/s/ Brian S. Lappin 5/28/98
- --------------------------------------------------------------- -----------
Brian S. Lappin, Vice President of Finance and Chief Financial Date
Officer (Principal Financial and Accounting Officer)
10
<PAGE> 14
WHAT A WORLD!, INC.
FINANCIAL STATEMENTS
JANUARY 31, 1998 AND FEBRUARY 1, 1997
(WITH INDEPENDENT AUDITORS' REPORTS THEREON)
11
<PAGE> 15
INDEPENDENT AUDITORS' REPORT
The Board of Directors
What A World!, Inc.:
We have audited the accompanying balance sheet of What A World!, Inc. (a
Delaware corporation) as of January 31, 1998 and the related statements of
operations and accumulated deficit and cash flows for the year then ended.
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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of What A World!, Inc. as of
January 31, 1998 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring operating losses, the Board of
Directors' unanimous approval of the sale of substantially all of the Company's
operating assets, the speculative nature of the post-sale business, and the
lack of liquidity and financing raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Clearwater, Florida
May 13, 1998 /s/ Kirkland, Russ, Murphy, & Tapp
12
<PAGE> 16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
What A World!, Inc.
We have audited the accompanying statements of operations and accumulated
deficit and cash flows of What a World!, Inc. for the year ended February 1,
1997. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of What a World!, Inc. and its
cash flows for the year ended February 1, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring operating losses, the Board of
Directors' unanimous approval of the sale of substantially all of the Company's
operating assets, the speculative nature of the post-sale business, and the
lack of liquidity and financing raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Tampa, Florida,
March 29, 1997 /s/ Arthur Andersen, LLP
13
<PAGE> 17
WHAT A WORLD!, INC.
BALANCE SHEET
JANUARY 31, 1998
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, 1998
----------------
<S> <C>
Current assets:
Cash and cash equivalents $ 130,713
Certificate of deposit -
Inventories -
Prepaid expenses and other current assets 6,873
------------
Total current assets 137,586
Property and equipment, net 2,500
Other assets -
------------
$ 140,086
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 30,000
Accrued expenses 60,950
Current maturities on capital lease obligations 1,518
------------
Total current liabilities 92,468
Capital lease obligations 1,849
------------
Total liabilities 94,317
------------
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 shares
authorized, 2,118,125 shares issued and outstanding
at January 31, 1998 21,181
Additional paid-in capital 4,538,782
Accumulated deficit (4,514,194)
------------
Net stockholders' equity 45,769
------------
$ 140,086
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 18
WHAT A WORLD!, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEARS ENDED JANUARY 31, 1998 AND FEBRUARY 1, 1997
<TABLE>
<CAPTION>
JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ----------------
<S> <C> <C>
Continuing operations:
General and administrative expenses $ 214,904 223,736
------------- ------------
Loss from continuing operations (214,904) (223,736)
Discontinued operations:
Loss from discontinued operations (508,186) (2,304,875)
Loss on disposal of assets and adjustment
to net realizable value of accounts payable
and capital lease obligations (393,741) -
------------- -------------
Net loss (1,116,831) (2,528,611)
Accumulated deficit, beginning of year (3,397,363) (868,752)
------------- ------------
Accumulated deficit, end of year $ (4,514,194) (3,397,363)
============= ============
Net loss from continuing operations per weighted
average common and common equivalent
share - basic and diluted $ (.10) ( .10)
Net loss from discontinued operations per
weighted average common and common
equivalent share - basic and diluted (.24) (1.09)
Net loss on disposal of assets and adjustment
to net realizable value of accounts payable and
capital lease obligations per weighted average
common and common equivalent share -
basic and diluted (.19) -
-------------- ------------
Net loss per weighted average common and
common equivalent share - basic and diluted $ (.53) $ (1.19)
============= ============
Weighted average common and common equivalent
shares outstanding - basic and diluted 2,118,125 2,118,125
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 19
WHAT A WORLD!, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1998 AND FEBRUARY 1, 1997
<TABLE>
<CAPTION>
JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,116,831) (2,528,611)
Adjustments to reconcile net loss to net cash and
cash equivalents:
Depreciation and amortization 118,000 386,749
Loss on sale of equipment - 4,114
Loss on disposal of assets and adjustment to
net realizable value of accounts payable and
capital lease obligations 393,741 -
Loss on impairment - 1,485,535
Changes in operating assets and liabilities:
Decrease in construction allowance receivable - 267,000
(Increase) decrease in inventories 198,015 (228,786)
Decrease in prepaid expenses and other current assets 41,178 84,262
(Increase) decrease in other assets 14,812 (2,713)
Increase (decrease) in accounts payable (1,076,938) 834,192
Decrease in accrued expenses (196,829) (223,712)
Increase in deferred rent - 87,479
------------ -----------
Net cash provided by (used in) operating
activities (1,624,852) 165,509
Cash flows from investing activities:
Purchases of property and equipment - (212,391)
Proceeds from Sale Agreement 517,795 -
Proceeds from sale of equipment - 15,900
Redemption of certificate of deposit 100,000 -
------------ -----------
Net cash provided by (used in) investing
activities 617,795 (196,491)
Cash flows from financing activities:
Borrowings under related party loan agreements - 410,000
Repayment of related party loans - (410,000)
Payments made on capital lease obligations (156,419) (61,827)
------------ -----------
Net cash used in financing activities (156,419) (61,827)
------------ -----------
Net decrease in cash and cash equivalents (1,163,476) (92,809)
Cash and cash equivalents, beginning of year 1,294,189 1,386,998
------------ -----------
Cash and cash equivalents, end of year $ 130,713 1,294,189
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 10,186 36,789
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 20
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND FEBRUARY 1, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
What A World!, Inc. (Company) was a mall-based unique gift
specialty retailer. The Company's assortment of products
generally targeted customers who have an active interest in
nature, the outdoors and science. The Company opened its first
store in August 1993 and had 12 permanent stores in operation at
February 1, 1997, which were located in major regional malls. Ten
of those stores were located in Florida and one store each was
located in New York and New Jersey. In addition, the Company
operated three temporary holiday outlets (temporary stores) in
Florida and 13 temporary stores in Florida, Georgia and South
Carolina during the 1995 and 1996 Christmas selling season,
respectively.
(b) Discontinued Operations and Subsequent Sale of Operations
Sale of Operations
In February 1997, the Company's Board of Directors approved the
sale of substantially all of 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) (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 retail gift 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.
(continued)
17
<PAGE> 21
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
Discontinued Operations Reporting
As a result of the sale on May 22, 1997, the results of What A
World!, Inc. for all years presented are reported in the
accompanying reclassified statements of operations and accumulated
deficit under discontinued operations. During fiscal year 1996,
the Company wrote down certain assets of the retail operation to
the net realizable values and the cost of disposing these
operations. In addition, in the first quarter of fiscal year 1997
the Company revalued its estimate of a majority of its accounts
payable and capital lease obligation balances reducing the
balances to reflect the realizable value of the total debt based
on the Company's negotiation of debt concessions from its debtors.
Upon closing of the Sale Agreement, the Company has been paying
its remaining liabilities and obligations with available cash and
the proceeds of the Sale Agreement. The Company has since become
an acquisition vehicle to effect acquisitions, whether by merger,
exchange of capital stock, acquisition of assets, or other similar
business combination with an operating business. Since the
closing of the sale transaction, the Company's ability to meet its
general and administrative cost obligations has become limited,
and the Company does not have an operating business to generate
income and may have limited excess cash, if any, upon paying its
vendors and other liabilities. There is no assurance that funds
will be available from any source, particularly in light of the
Company's anticipated financial condition, to effect any such
business combinations. The Company has not entered into any
arrangements in which it will attempt to obtain an interest.
Total revenues related to discontinued operations for the years
reported on in the statements of operations and accumulated
deficit were $1,640,151 and $8,166,755 for the years ended January
31, 1998 and February 1, 1997, respectively.
(c) Fiscal Year
The years ended January 31, 1998 and February 1, 1997 were 52-week
years.
(d) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and investments
with original maturities of less than three months.
(continued)
18
<PAGE> 22
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
(e) Property and Equipment
Property and equipment is stated at cost. Depreciation is
computed using the straight-line method over the estimated useful
lives of the assets. Assets acquired under capital lease
obligations and leasehold improvements are amortized over the
lesser of the useful lives of the assets or the lease terms.
Maintenance and repairs of property and equipment are expensed as
incurred, and major improvements are capitalized. Upon
retirement, sale or other disposition of property and equipment,
the cost and accumulated depreciation or amortization are
eliminated from the accounts, and any gain or loss is charged or
credited to operations.
In the year ended February 3, 1996, the Company adopted the
Financial Accounting Standards Board's (FASB) Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed of" (SFAS 121). The impact of adopting SFAS 121 is
reflected in loss on impairment in the accompanying statements of
operations and accumulated deficit for the year ended February 1,
1997.
(f) Net Loss Per Share of Common Stock
In the fourth quarter of fiscal 1998, the Company adopted
Statement of Financial Accounting Standards No. 128, Earnings per
Share (SFAS 128). Under SFAS 128, basic net loss per share of
common stock is computed by dividing income available to common
stockholders by the weighted average number of common shares
actually outstanding during the period. Diluted net loss per
share of common stock presents loss attributable to common shares
actually outstanding plus potential dilutive common shares
outstanding during the period. The Company's options and warrants
were not included in computing dilutive net loss per common stock
because their effects were anti-dilutive.
(g) 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 and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(h) Seasonality
The Company's business was highly seasonal, with a substantial
portion of its revenues derived from product sales during the
months of November and December. 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
would be materially adversely affected.
(continued)
19
<PAGE> 23
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
(2) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of January 31,
1998:
<TABLE>
<CAPTION>
Estimated
useful lives Amount
------------ ------
<S> <C> <C>
Furniture, fixture and equipment 5 years $ 7,500
--------
Less - accumulated depreciation and amortization (5,000)
--------
$ 2,500
========
</TABLE>
The Company recorded a loss on impairment of equipment and leasehold
improvements at certain store locations to their net realizable value in
fiscal 1996 and is included in the net loss from discontinued
operations. A majority of these assets represented improvements to the
property, which were revalued to zero, since they could not be sold or
used in other store locations.
(3) COMMITMENTS AND CONTINGENCIES
Prior to the Sale on May 22, 1997, the Company leased retail store space
and office space under operating leases set up to expire in various
years through 2005. These leases included fixed rent payments that
escalated over the term of the lease and contingent rent payments based
on gross sales exceeding certain thresholds. There were no contingent
rent payments for the years ended January 31, 1998 and February 1, 1997.
As a result of the Sale Agreement, the Company agreed to assign their
existing operating leases to the Buyer. The Company received landlord
consent for all of the lease assignments except two. For one assigned
lease lacking landlord consent, the Buyer is negotiating on the
Company's behalf with the landlord for their consent. The other
remaining assigned lease did not require landlord consent for the
assignment; however, certain requirements for lease assignment were set
up by the landlord in the lease contract. The Company, as well as the
Buyer, believes that the Buyer has satisfactorily complied with the
landlord's requirements for assigning this lease obligation. The
Company may still be held liable under these lease obligations should
the Buyer default on the assigned leases.
(continued)
20
<PAGE> 24
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
(3) COMMITMENTS AND CONTINGENCIES - CONTINUED
Approximate minimum future rental payments under these noncancelable
operating leases (exclusive of common area maintenance charges) as of
January 31, 1998 were as follows:
<TABLE>
<CAPTION>
Assigned Unassigned
Fiscal Year Leases Leases
----------- ------------ -----------
<S> <C> <C>
1999 $ 819,000 81,000
2000 846,000 84,000
2001 871,000 89,000
2002 921,000 89,000
2003 981,000 89,000
Thereafter 1,842,000 278,000
----------- -------
$ 6,280,000 710,000
=========== =======
</TABLE>
Total rent expense, including common area maintenance charges under the
Company's operating leases, was approximately $194,000 and $1,328,000
during the years ended January 31, 1998 and February 1, 1997,
respectively.
Through May 22, 1997, the Company maintained a $100,000 letter-of-credit
to serve as collateral for primarily all of the Company's capital lease
obligations. The letter-of-credit was set up to expire in November
1997, however, as a result of the Sale the Company's letter-of-credit
was no longer applicable, therefore it was canceled.
Future minimum lease payments under capital lease obligations, together
with the present value of the future minimum lease payments, were as
follows as of January 31, 1998:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1999 $ 1,779
2000 1,936
-------
Total minimum lease obligations 3,715
Less interest (348)
-------
Present value of capital lease obligations,
including current maturities of $1,518 $ 3,367
=======
</TABLE>
Effective March 26, 1996, the original president of the Company
resigned. The original president had an employment agreement
(Agreement) with the Company which, as amended, expired in February
1997. All amounts due to the original president under this Agreement
had been paid as of January 31, 1998. The Company does not have an
employment agreement with its' current president.
(continued)
21
<PAGE> 25
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
(3) COMMITMENTS AND CONTINGENCIES - CONTINUED
The Company had a $55,000 corporate credit line as of February 1, 1997,
to facilitate employee expenses. The amount outstanding under this line
was minimal as of February 1, 1997 and was included in accounts payable
in the accompanying 1997 balance sheet. As a result of the Sale, this
corporate credit line was terminated and repaid.
The Company is not a party or subject to any legal proceedings, other
than claims and lawsuits arising in the ordinary course of business.
The Company does not believe that any such claims or lawsuits will have
a material adverse effect on its financial condition or results of
operations.
(4) INCOME TAXES
As of January 31, 1998, the Company had net deferred income tax assets
of approximately $819,000 which was fully offset by a valuation
allowance. The vast majority of net deferred income tax asset (before
allocation of the valuation allowance) consisted of net operating loss
(NOL) carryforwards as of January 31, 1998.
As of January 31, 1998, the Company had federal NOL carryforwards of
approximately $2,183,000. Approximately $90,000 of the NOL was
associated with the period January 1, 1995 through January 28, 1995, and
can be carried forward ratably over the next three fiscal years.
Approximately $2,093,000 of the NOL relates to the Company's C
corporation periods and can be carried forward through periods ranging
from 2009 to 2013. The benefit of the NOL carryforwards most likely
will not be realized due to the Company's discontinued operations from
the specialty retail business and subsequent change to an acquisition
company after the closing of the sale transaction.
(continued)
22
<PAGE> 26
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
(5) RELATED PARTY TRANSACTION
During the year ended February 1, 1997, the Company entered into
agreements with three members of its Board to borrow up to $600,000 to
fund operations. The Company borrowed $410,000 under these agreements,
all of which was repaid before February 1, 1997. Outstanding balances
under these agreements accrued interest at 12% per annum, and interest
of approximately $9,000 is included in interest expense in the
accompanying statements of operations and accumulated deficit.
Additionally, the Company granted to the three directors one warrant for
every three dollars of borrowings made available (see Note 6). There
were no similar related party transactions during the year ended January
31, 1998.
(continued)
23
<PAGE> 27
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
(6) WARRANTS
As of January 31, 1998, the following warrants were outstanding:
<TABLE>
<CAPTION>
Aggregate
Title of issuance Amount of
of Security Securities
Called for by Called for by Terms of Exercise Redemption
Title Warrants Warrants Warrants Price Price
----- ---------------- -------------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Redeemable warrants Common 5/17/95-
Stock 1,150,000 5/17/98 $ 5.00 $ 0.10
Underwriters' warrants Common 11/17/95-
Stock 100,000 11/17/99 7.25 -
Underwriters' warrants Redeemable 11/17/95-
Warrants 100,000 11/17/99 145 -
Directors' warrants Common 8/31/96-
Stock 200,000 8/31/01 1.00 -
---------
Warrants outstanding 1,550,000
=========
</TABLE>
The Redeemable Warrants may be redeemed by the Company, subject to
certain conditions, at $.10 per warrant if the Company's common stock
trades for 20 consecutive days at or above $7.50 per share. The
Underwriter's Warrants and Directors' Warrants are not redeemable by the
Company. The effect of warrants outstanding has not been included in
the weighted average common and common equivalent shares outstanding on
the accompanying statements of operations and accumulated deficit, as
these warrants would have an antidilutive effect on net loss per
weighted average common and common equivalent share.
(continued)
24
<PAGE> 28
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
(7) STOCK OPTION PLANS
1994 Non-Employee Directors' Stock Option Plan
In November 1994, the Board adopted the 1994 Non-Employee Directors'
Stock Option Plan (the Directors' Plan), which became effective upon the
date of the Company's initial public offering (Offering), reserving
40,000 unregistered shares of common stock for issuance under the
Directors' Plan. Options under Directors' Plan vest ratable over three
years and may be exercised for ten years from the grant date. The
exercise price per share of each stock option will be equal to the fair
market value of the stock on the date of grant. No options were granted
during the year ended January 31, 1998. During the year ended February
1, 1997, the Company granted 10,000 options to non-employee directors at
an exercise price of $1.50 under the Directors' Plan.
1994 Stock Option Plan
In November 1994, the Board adopted the 1994 Stock Option Plan (Stock
Option Plan) which became effective upon the effective date of the
Offering, reserving 260,000 unregistered shares of common stock for
issuance under the Stock Option Plan as incentive or non-incentive stock
options. Options under the Stock Option Plan vest ratable between one
and five years as stated and may be exercised for ten years from the
grant date. The exercise price per share of each stock option will be
an amount not less than the par value of such shares and, in the case of
incentive options, not less than the fair market value of such shares on
the date of the grant. No options were granted during the year ended
January 31, 1998, under the Stock Option Plan.
In May 1996, the Stock Option Plan was amended to add 300,000 shares to
the previously authorized shares that were subject to options under the
Stock Option Plan, resulting in a total of 560,000 shares of common
stock available to grant under the Stock Option Plan. During the year
ended February 1, 1997, the Company granted 400,000 options at exercise
prices ranging from $1.00 to $1.68 per share under the Stock Option
Plan.
(continued)
25
<PAGE> 29
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
Aggregate Stock Option Activity
The following table summarizes information about the aggregate stock
option activity for the years ended January 31, 1998 and February 1,
1997:
<TABLE>
<CAPTION>
JANUARY 31, 1998 FEBRUARY 1, 1997
--------------------------- ---------------------------
Weighted- Weighted-
average average
Number exercise Number exercise
of shares price of shares price
--------- -------------- --------- ------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 540,000 $ 2.24 130,000 $ 4.54
Granted - - 410,000 1.51
Exercised - - - -
Forfeited - - - -
------- ------ ------- ------
Outstanding, end of year 540,000 $ 2.24 540,000 $ 2.24
======= ====== ======= ======
Options vested, end of year 356,667 $ 2.61 293,333 $ 2.85
======= ====== ======= ======
</TABLE>
The weighted-average fair value of options granted during the year ended
February 1, 1997 was $.69.
The following table summarizes information about stock options at
January 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -----------------------------
Weighted-
Weighted- average Weighted-
average remaining average
Number exercise contractual Number exercise
Exercise Price outstanding price life (years) exercisable price
-------------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
$1.00 70,000 $ 1.00 8 28,000 $ 1.00
1.50 110,000 1.50 8 106,667 1.50
1.68 230,000 1.68 8 92,000 1.68
4.25 80,000 4.25 6 80,000 4.25
5.00 50,000 5.00 6 50,000 5.00
------- ------ ---- ------- ------
540,000 $ 2.24 7.52 356,667 $ 2.61
======= ====== ==== ======= ======
</TABLE>
The effect of options outstanding has not been included in weighted
average common and common equivalent shares outstanding in the
accompanying statements of operations and accumulated deficit, as these
options would have an antidilutive effect on net loss per weighted
average common and common equivalent share.
(continued)
26
<PAGE> 30
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
Accounting for Stock-Based Compensation
The Company accounts for its stock option plans under Accounting
Principles Board Opinion No. 25 (APB 25), under which no compensation
expense has been recognized. In October 1995, the FASB issued SFAS No.
123, "Accounting for Stock-Based Compensation" (SFAS 123), which was
effective for fiscal years beginning after December 15, 1995. SFAS 123
allows companies to continue following the accounting guidance of APB
25, but requires pro forma disclosure of net income and earnings per
share for the effects on compensation expense had the accounting
guidance of SFAS 123 been adopted. The pro forma disclosures are
required only for options granted in fiscal years beginning after
December 15, 1994.
The Company adopted SFAS 123 for disclosure purposes in the year ended
February 1, 1997. For SFAS 123 purposes, the fair value of each option
granted has been estimated as of the grant date using the Black-Scholes
option pricing model with the following weighed average assumptions:
risk-free interest rates ranging from 5.9 to 6.4%, expected life of
three years, no expected dividends, and expected volatility of
approximately 60%. Using these assumptions, the fair value of the stock
options granted in the year ended February 1, 1997, was approximately
$75,000, which would be amortized as compensation expense over the
vesting periods of the options.
Had compensation expense been recognized under SFAS 123, utilizing the
assumptions detailed above, the Company's net loss and net loss per
weighted average common and common equivalent share (EPS) would have
been changed to the following pro forma amounts for the fiscal year
ended February 1, 1997. The Company did not grant any options during
the year ended January 31, 1998.
<TABLE>
<CAPTION>
February 1, 1997
----------------
<S> <C>
Net loss:
As reported $ (2,528,611)
Pro forma (2,570,863)
EPS:
As reported $ (1.19)
Pro forma (1.21)
</TABLE>
Because the SFAS 123 method of accounting has not been applied to
options granted in fiscal years beginning prior to December 15, 1994,
the resulting pro forma compensation expense may not be representative
of that to be expected in future years.
(8) SUBSEQUENT EVENTS
Subsequent to January 31, 1998, the Company extended the exercise period
of its publicly-held Redeemable Common Stock Purchase Warrants (Note 6)
from May 17, 1998 to May 17, 2000.
Also, subsequent to January 31, 1998, the Company extended the exercise
period of its publicly-held Directors' Common Stock Purchase Warrants
(Note 6) from August 31, 2001 to August 31, 2003.
27
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 130,713
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 137,586
<PP&E> 7,500
<DEPRECIATION> 5,000
<TOTAL-ASSETS> 140,086
<CURRENT-LIABILITIES> 92,468
<BONDS> 0
0
0
<COMMON> 21,181
<OTHER-SE> 24,588
<TOTAL-LIABILITY-AND-EQUITY> 140,086
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 214,904
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (214,904)
<INCOME-TAX> 0
<INCOME-CONTINUING> (214,904)
<DISCONTINUED> (901,927)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,116,831)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> (.53)
</TABLE>
