-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MGWjgZHgd9YZxNLEFQrdgXGJNOHVwyg/KxR3D6tGZIvriD0EF8SrqmYAzquk1kiO gaH5uhTpz6GFiApBUyywvA== 0000043837-99-000004.txt : 19990430 0000043837-99-000004.hdr.sgml : 19990430 ACCESSION NUMBER: 0000043837-99-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990130 FILED AS OF DATE: 19990429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOODLE KIDOODLE INC CENTRAL INDEX KEY: 0000043837 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISC DURABLE GOODS [5090] IRS NUMBER: 111771705 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06083 FILM NUMBER: 99604464 BUSINESS ADDRESS: STREET 1: 6801 JERICHO TURNPIKE STE 100 CITY: SYOSSET STATE: NY ZIP: 11791-4427 BUSINESS PHONE: 5166770500 MAIL ADDRESS: STREET 1: 105 PRICE PARKWAY STREET 2: 105 PRICE PARKWAY CITY: FARMINGDALE STATE: NY ZIP: 11735 FORMER COMPANY: FORMER CONFORMED NAME: GREENMAN BROTHERS INC DATE OF NAME CHANGE: 19920703 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED). For the fiscal year ended January 30, 1999 Commission file number 1-6083 NOODLE KIDOODLE, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 11-1771705 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 6801 Jericho Turnpike, Syosset, NY 11791 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (516)-677-0500 Securities registered pursuant to Section 12 (b) of the Act: Name of Each Exchange Title of Each Class on Which Registered Common Stock, $.001 par value NASDAQ National Market Securities registered pursuant to Section 12 (g) of the Act: NONE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. [ ] -1- The aggregate market value of voting stock held by non-affiliates of the registrant as of April 16, 1999 was $54,165,286 based on the closing price of same stock on that date. In determining the market value of non-affiliated voting stock, shares of common stock beneficially owned by each executive officer and director have been excluded. This determination of affiliate status in not necessarily a conclusive determination for other purposes. The number of shares of common stock outstanding as of April 16, 1999 was 7,601,365. Documents Incorporated by reference: Certain portions of Registrant's definitive proxy statement with respect to its 1999 Annual Meeting of Stockholders to be filed, pursuant to Regulation 14A under the Securities Exchange Act of 1934, with the Commission within 120 days of the close of Registrant's fiscal year ended January 30, 1999 are incorporated by reference into Part III of this report. -2-
TABLE OF CONTENTS Page PART I Item 1. Business 4 Item 2. Properties 8 Item 3. Legal Proceedings 8 Item 4. Submission of Matters to a Vote of Security Holders 8 Part II Item 5. Market for Registrant's Common Stock and Related Stockholders' Matters 9 Item 6. Selected Financial Data 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of 12 Operations Item 7A.Quantitative and Qualitative Disclosures About Market Risk 17 Item 8. Financial Statements and Supplementary Data 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 17 PART III Item 10. Directors and Executive Officers of the Registrant 17 Item 11. Executive Compensation 17 Item 12. Security Ownership of Certain Beneficial Owners and Management 17 Item 13. Certain Relationships and Related Transactions 17 PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K 18 -3-
PART I ITEM 1. BUSINESS. (a) General Noodle Kidoodle, Inc., a Delaware corporation (the "Company" or "Registrant") is a specialty retailer of a broad assortment of educationally oriented, creative and non-violent children's products, including toys, books, games, video and audio tapes, computer software, crafts and other learning products. The Company was founded in 1946 and, doing business under its former name Greenman Bros. Inc., engaged in the retail toy business as well as the wholesale distribution of general merchandise, with an emphasis on toys, stationery and housewares. During the 1980s, the Company operated a number of retail toy stores, including a chain of 330 stores under the Circus World name located principally in shopping malls in approximately 30 states. The Company sold the Circus World stores in Fiscal 1991 but continued to operate a number of retail toy stores under the Playworld name. The Company opened its first Noodle Kidoodle store in November 1993, and opened three additional Noodle Kidoodle stores in Fiscal 1995. During Fiscal 1996, management determined that the Company should focus exclusively on its retail business by expanding and developing the Noodle Kidoodle retail concept. Accordingly, in August 1995, the Company adopted a new business plan and ceased operating its wholesale division. The Company, in December 1995, changed its name from Greenman Bros. Inc. to Noodle Kidoodle, Inc. and, in January 1996, changed its jurisdiction of incorporation to Delaware. The Company operated 42 Noodle Kidoodle stores at the close of the fiscal year ended January 30, 1999 ("Fiscal 1999") located in New York, New Jersey, Connecticut, Texas, Oklahoma, Florida and the Boston, Chicago, and Detroit metropolitan areas. (b) Financial Information About Industry Segments Registrant currently operates in one industry segment which involves the retail sales of children's toys and other products. In prior years it also operated in a second segment which was the wholesale distribution of general merchandise. This segment was discontinued in August 1995 and the results are disclosed as discontinued operations. -4- (c) Narrative Description of Business Noodle Kidoodle, Inc. is a specialty retailer of a broad assortment of educationally oriented, creative and non-violent children's products. The Noodle Kidoodle concept offers something new to parents and children by combining the attractive pricing and larger size of traditional toy stores with the more creative product selection and superior customer service of small boutiques, while providing an entertaining shopping environment through interactive play areas and frequent in-store events. The Company's stores range from approximately 6,100 to 13,300 square feet and average approximately 10,100 square feet. Each store offers customers a warm and inviting shopping environment with brightly lit spaces, colorful walls, ceilings and carpets, wide aisles for strollers and kid-level seating and product shelving. Each store typically carries approximately 16,000 stock-keeping units ("SKU's"), conveniently displayed in separate merchandise departments, such as "Science & Nature" and "Arts & Crafts", which are identified by eye-catching signs that are visual as well as verbal so that children can understand them. All of the products carried in Noodle Kidoodle stores conform to the Company's creative, non-violent and educational merchandising strategy. The Company generally does not carry mass market television advertised toys. However, in certain product categories, the Company does carry brand name products which fit the Noodle Kidoodle philosophy, such as Crayola, Lego, Playmobil, Mattel, the full line of Walt Disney video titles and the Goosebumps line of books. The Company purchases merchandise from over 600 suppliers. There is currently only one supplier which represents grater then 10% of the Company's total purchases. Purchases from Ty, Inc., were approximately 11% of total purchases in Fiscal 1999. At the end of its 1999 fiscal year, the Company operated 42 Noodle Kidoodle stores located in New York, New Jersey, Connecticut, Texas, Oklahoma, Florida and the Boston, Chicago and Detroit metropolitan areas. It opened a total of ten new stores in fiscal 1999, five stores in Texas, one in Oklahoma, one in Florida, two in New York, and one in Michigan. The Company's new store program for the coming year is well underway, with two stores open and three stores under construction as of April 30, 1999. The Company plans to open between twelve and fifteen stores in Fiscal 2000. The Company believes that there are opportunities for nationwide expansion over the longer term. -5- The Company believes that the following elements are important to its retailing concept: * Interactive Shopping Environment - Each Noodle Kidoodle store is designed with children in mind. Each store has designated play areas where children and their parents are encouraged to explore toys and games in keeping with the Company's "try before you buy" philosophy. Among the key interactive features of each store are the Computer Center, "Kidoodle Theater" and the Electronic Learning Center. * Broad Assortment of Imaginative Products - Noodle Kidoodle stores offer a broad assortment of products designed to stimulate a child's imagination and contribute to his or her growth and development, consistent with the Company's slogan that "Kids learn best when they're having fun." To keep its merchandise mix fresh and exciting, the Company continually seeks innovative new products. * In-Store Events - The Company provides without charge frequent in-store events such as personal appearances by authors and children's television personalities, arts and crafts workshops and readings from selected books to provide entertainment to its customers, increase store traffic and position Noodle Kidoodle as a destination store. * Superior Customer Service - By providing knowledgeable and friendly customer service and selecting enthusiastic employees who enjoy working with children, the Company believes that it has a competitive advantage over lower-service superstores and mass merchandisers. * Targeted Marketing - The Company conducts a targeted direct mail marketing program and continuously updates its customer database for this purpose. * Competitive Pricing - Noodle Kidoodle offers everyday competitive pricing. Many products are regularly discounted and prices in general are believed to be competitive with those featured by superstores carrying similar lines of merchandise. Backlog is not considered relevant to an understanding of Registrant's business. Registrant is required to carry substantial amounts of inventory in the months of September through November of each year in order to meet holiday delivery requirements. Registrant did not have any customers that represented more than 10% of consolidated revenues for the year ended January 30, 1999. -6- Registrant's business is highly seasonal and approximately 45% of its revenues occur in the fourth quarter. The retail toy business is highly competitive. The Company competes on the basis of its stores' interactive environment, broad merchandise selection, superior customer service and competitive pricing. The Company competes with a variety of mass merchandisers, superstores and other toy retailers, including Toys R Us and Kay Bee Toy Stores and other store formats selling children's products, such as discount stores and smaller specialty toy stores. Retailing of children's educational products is a relatively new concept. Included among the Company's direct competitors are Zany Brainy, Learningsmith, Store of Knowledge, Learning Express and Imaginarium. The Company also faces growing competition from internet-based retailers, such as eToys and Amazon.com. Because internet-based retailers do not operate retail stores, they may enjoy an overall operating cost advantage. Some of the Company's competitors are much larger in terms of sales volume and have more capital and greater management resources than the Company. In addition, due to the nature of electronic commerce, they may reach a broader market. If any of the Company's larger competitors were to increase their focus on the educational market or if any regional competitors were to expand their activities in the markets primarily served by the Company, it could be adversely affected. If any of the Company's major competitors seek to gain or retain market share by reducing prices, the Company may be required to reduce its prices on key items in order to remain competitive, which would have the effect of reducing its profitability. As of January 30, 1999, the Company employed 1,210 people, of whom 432 were employed full-time. The Company also employs additional part-time personnel during the pre-Christmas season. The Company believes that its relations with its employees are generally good. The Company has registered several service marks and trademarks with Federal and State authorities, including Noodle Kidoodle (registered), Oodles & Oodles of Fun Things to Learn (registered), Kidoodle Animation (registered), and the Company's slogan "Kids learn best when they're having fun" (registered). The Company believes it has all licenses necessary to conduct its business. -7- ITEM 2. PROPERTIES. The Company leases all of its Noodle Kidoodle stores. Original lease terms generally are for ten years, and many leases contain renewal options. The Company's stores are generally located in either strip shopping centers or in enclosed shopping mall locations. The 42 stores operating at the end of Fiscal 1999 ranged in size from approximately 6,100 to 13,300 square feet. The Company currently supports its retail operations with an owned 269,000 square foot distribution center in Phillipsburg, New Jersey. The Company had previously supported its total retail and wholesale operations with three other distribution centers located in Farmingdale, New York, West Haven, Connecticut and Birmingham, Alabama. The Farmingdale and West Haven facilities were disposed of when the Company's wholesale operations were discontinued. The Company discontinued the use of the Birmingham center in 1989 and has been sub-leasing the space to third parties since such discontinuance. The Company does not believe that disposing of the Birmingham facility will have a material adverse effect on its operations or financial condition. The Company's executive offices are located at Syosset, New York. The Company has a five-year lease for its executive offices which contains an option to renew for an additional five years. Registrant believes that the foregoing facilities are adequate for its present operations and such facilities are maintained in a good state of repair. See Note 5 (Commitments and Contingencies) of the Notes to Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS. The Company is not a party to any legal proceedings other than claims and lawsuits arising in the normal course of its business which, in the opinion of the Company's management, are not individually or in the aggregate material to its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. None PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS' MATTERS. The Company's Common Stock is quoted on the NASDAQ National Market under the symbol "NKID". The following table sets forth, for the periods indicated, the high and low sales prices per share for the Common Stock for each of the fiscal quarters indicated for Fiscal 1999 and for the fiscal year ended January 31, 1998 ("Fiscal 1998").
High Low Fiscal 1999 First Quarter $ 7.56 $ 3.75 Second Quarter 7.38 5.00 Third Quarter 6.13 3.13 Fourth Quarter 11.63 5.25 Fiscal 1998 First Quarter $ 3.88 $ 2.50 Second Quarter 4.50 2.38 Third Quarter 4.13 2.75 Fourth Quarter 5.13 3.69
As of January 30, 1999 there were approximately 598 holders of record of Common Stock. The Company has not paid cash dividends on its Common Stock since 1969 and currently anticipates that it will retain all available funds generated by its operations for the development and growth of its business. Any future determination as to dividend policy will be made at the discretion of the Board of Directors of the Company and will depend on a number of factors, including the future earnings, capital requirements, financial condition and business prospects of the Company and such other factors as the Board of Directors may deem relevant. -9- ITEM 6. SELECTED FINANCIAL DATA. The selected financial data presented below reflects the consolidated results of operations, financial condition and operating data of the Company for the periods indicated, after giving retroactive effect to the Company's discontinued wholesale business segment. This data should be read in conjunction with the Consolidated Financial Statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this report. The consolidated financial data for the fifty-two weeks ended January 30, 1999, January 31, 1998, February 1, 1997, fifty-three weeks ended February 3, 1996, and the fifty-two weeks ended January 28, 1995, are derived from the consolidated financial statements of the Company which have been audited by Janover Rubinroit, LLC, independent certified public accountants. -9- SELECTED FINANCIAL DATA Fiscal Years Ended Jan. 30, Jan. 31, Feb. 1, Feb. 3, Jan. 28, 1999 1998 1997 1996 1995 (52 Weeks) (52 weeks)(52 weeks)(53 weeks) (52 weeks) (In thousands except share data)
STATEMENT OF OPERATIONS DATA: Net Sales $107,886 $81,664 $59,410 $32,143 $23,308 Net income (loss) from: Continuing operations $ 3,752 $(1,918) $(7,492) $(5,272) $(4,490) Discontinued operations - - - (9,059) 1,096 Net income (loss) $ 3,752 $(1,918) $(7,492) $(14,331) $(3,394) Basic earnings per share Continuing operations $ .49 $ (.25) $ (1.00) $ (.99) $ (.86) Discontinued operations - - - (1.70) .21 Net income (loss) per share $ .49 $ (.25) $ (1.00) $ (2.69) $ (.65) Diluted earnings per share Continuing operations $ .49 $ (.25) $ (1.00) $ (.99) $ (.86) Discontinued operations - - - (1.70) .21 Net income (loss) per share $ .49 $ (.25) $ (1.00) $ (2.69) $ (.65) Weighted average shares: Basic 7,588 7,580 7,488 5,320 5,220 Diluted 7,722 7,587 7,601 5,498 5,361 SELECTED OPERATING DATA (AT PERIOD END) Stores open 42 32 31 22 8 BALANCE SHEET DATA: Working capital $15,404 $15,977 $16,819 $14,031 $35,667 Total assets 57,962 49,481 51,036 37,276 48,042 Stockholders' equity 37,612 33,781 35,699 27,080 40,870 Long term obligations 712 733 753 - - Dividends per common share - - - - - In accordance with FASB No. 128, as a result of losses from continuing operations, the inclusion of employee stock options were antidilutive and, therefore, were not utilized in the computation of diluted earnings per share in fiscal years 1998, 1997, 1996 and 1995, respectively.
-11- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS Fiscal Year Ended January 30, 1999 compared to Fiscal Year Ended January 31, 1998 Net sales increased a total of 32.1% to $107.9 million in Fiscal 1999 from $81.7 million in Fiscal 1998. Noodle Kidoodle sales increased $26.4 million or 32.4% to $107.9 million in Fiscal 1999 from $81.5 million in the prior year, primarily due to increased sales in comparable stores of 16%, the addition of ten new stores during Fiscal 1999 and one new store during Fiscal 1998. Other retail stores had $.2 million of sales in Fiscal 1998. The last Playworld store was closed on October 31, 1997. The Company operated 42 Noodle Kidoodle stores at January 30, 1999 compared to 32 Noodle Kidoodle stores at January 31, 1998. Gross profit (derived from net sales less cost of products sold, which includes buying and warehousing costs) increased 35.8% to $42.5 million for Fiscal 1999 from $31.3 million in Fiscal 1998. Overall gross profit as a percent of sales ("gross profit percentage") increased to 39.4% in Fiscal 1999 from 38.3% in Fiscal 1998. The increase in gross profit percentage was primarily attributable to favorable product mix and the leveraging of buying and fixed warehousing costs over a larger sales base, offset by slightly higher variable warehousing costs. Selling and administrative expenses increased $5.2 million or 15.5% to $38.8 million in Fiscal 1999 from $33.6 million in the prior year. Direct store expenses which consist of payroll, occupancy, advertising and other store operating expenses increased $4.4 million, due to change in the store base and higher sales levels. Home office expenses increased $.8 million. Selling and administrative expenses as a percent of net sales decreased to 36.0% in Fiscal 1999 from 41.1% in the prior year, primarily as a result of sales leveraging against the fixed portion of these costs. Net income rose to $3.8 million ($.49 per share) in Fiscal 1999 from a net loss of $1.9 million ($.25 per share) in the prior year. The net income in Fiscal 1999 did not include a tax provision and the net loss in Fiscal 1998 did not include a tax benefit. At January 30, 1999, the Company had approximately $16.5 million of net operating loss carryforwards for tax purposes. -12- Fiscal Year Ended January 31, 1998 Compared to Fiscal Year Ended February 1, 1997. Net sales increased a total of 37.5% to $81.7 million in Fiscal 1998 from $59.4 million in fiscal year ended February 1, 1997, ("Fiscal 1997"). Noodle Kidoodle sales increased $23.8 million or 41.2% to $81.5 million in Fiscal 1998 from $57.7 million in the prior year, primarily due to increased comparable store sales of 16%, the addition of one store during Fiscal 1998 and thirteen stores during Fiscal 1997. Other retail sales decreased 88.2% to $.2 million in Fiscal 1998 from $1.7 million in the prior year, primarily as a result of closing the last Playworld store on October 31, 1997. The Company operated 32 Noodle Kidoodle stores at January 31, 1998 compared to 31 Noodle Kidoodle stores and one Playworld store at February 1, 1997. Gross profit (derived from net sales less cost of products sold, which includes buying and warehousing costs) increased 36.7% to $31.3 million for Fiscal 1998 from $22.9 million in Fiscal 1997. Overall gross profit as a percent of net sales decreased to 38.3% in Fiscal 1998 from 38.5% in Fiscal 1997. The decrease in gross profit percentage was primarily attributable to increased markdowns of .7%, offset by lower merchandise costs, decreases in buying costs (including the salaries and related expenses of the Company's buyers) and greater sales leverage against warehousing costs which contain some fixed elements. Gross profit in the other retail store was immaterial to the overall gross profit percentage. Selling and administrative expenses increased 8.0% to $33.6 million in Fiscal 1998 from $31.1 million in the prior year. These increases resulted primarily from higher direct store expenses which increased $4.6 million due to change in the store base and higher sales levels, offset by a reduction in home office expenses of $1.9 million and a $.2 million reduction in store pre-opening costs. The reduction in home office expenses reflects steps taken last year to reduce administrative staff by approximately 20%. Selling and administrative expenses as a percentage of net sales decreased to 41.1% in Fiscal 1998 from 52.4% in the prior year, primarily as a result of leveraging selling and administrative expenses which did not rise commensurately with increased sales levels. Net loss decreased 74.7% to $1.9 million ($.25 per share) in Fiscal 1998 from $7.5 million ($1.00 per share) in the prior year. The net loss in both Fiscal 1998 and Fiscal 1997 did not include tax benefits. At January 31, 1998, the Company had approximately $21.4 million of net operating loss carryforwards for tax purposes. -13- LIQUIDITY AND CAPITAL RESOURCES During the past three fiscal years the Company satisfied the cash requirements for its continuing retail operations principally through the sale of securities, borrowings under its revolving credit facility and internal cash balances. These cash requirements principally have included financing operating losses, working capital requirements and expenditures for new store openings. Fiscal Years Ended 1999 1998 1997 (In thousands)
Net cash provided by (used in) Operating activities: Continuing operations $ 6,215 $ 2,673 $(9,438) Discontinued operations 130 (1,252) (1,585) Investing activities (7,315) (1,637) (1,798) Financing activities 59 (18) 16,882 Net increase (decrease) in cash and cash equivalents (911) (234) 4,061 Cash and cash equivalents - beginning of year 11,099 11,333 7,272 Cash and cash equivalents - end of year $10,188 $11,099 $ 11,333
During Fiscal 1999, the Company generated $6.2 million of cash from operating activities, primarily from net income of $3.8 million and non-cash charges of $2.9 million, offset by increases in working capital of $.5 million. The net increase in working capital was attributable to higher inventory levels as a result of opening ten new stores. The net liabilities of discontinued operations increased $.1 million during the year. Net cash used in investing activities was $7.3 million, primarily to purchase fixed assets for new stores including $.7 million for stores scheduled to open in Fiscal 2000. As a result of the foregoing, cash and cash equivalents decreased during the year by $.9 million. During Fiscal 1998, the Company generated $2.7 million of cash from operating activities of its continuing operations, primarily from a net loss of $1.9 million offset by non-cash charges of $2.7 million and a decrease in working capital of $1.9 million. The net liabilities of discontinued operations were reduced by $1.3 million during the year. Net cash used in investing activities was $1.6 million, primarily to purchase fixed assets for new and remodeled stores. As a result of the foregoing, cash and cash equivalents decreased during the year by $.2 million. -14- During Fiscal 1997, the Company generated $16.9 million of cash from financing activities, principally from the sale of new Common Stock, the net proceeds of which were approximately $16.0 million. Net cash used in investing activities was $1.8 million, composed of property additions for new stores and for upgrading the stores' point-of-sale computer system, which together totaled $9.4 million, offset by $7.6 million of proceeds from the sale of property from discontinued operations. Cash was also used to fund $9.4 million of cash requirements for continuing operations, attributable to a net loss of $7.5 million and increased working capital needs of $4.2 million due to new store openings and increased inventory levels, offset by non-cash charges of $2.3 million. Inventory increased from $10.3 million at February 3, 1996 to $17.3 million at February 1, 1997, primarily resulting from new store openings. As a result of the foregoing, cash and cash equivalents increased during the year by $4.1 million. The Company maintains a revolving credit facility, effective through June 2000, with The CIT Group/Business Credit, Inc., which provides up to $20 million of available borrowings. This facility may be used for direct borrowings and letters of credit and may not exceed a certain percentage of, and is collateralized by, the Company's inventory, receivables and certain other assets. The agreement provides for an annual collateral management fee and commitment fee on the unused portion of the commitment. Outstanding borrowings bear interest, at the option of the Company, based on the prime rate or LIBOR. The agreement contains certain covenants which among other items, limits the payment of cash dividends when borrowings under the agreement are outstanding. As of January 30, 1999, no borrowings were outstanding under the revolving credit facility. The Company expects to open between twelve to fifteen stores during Fiscal 2000. The Company anticipates that capital expenditures in Fiscal 2000 will be approximately $7.3 million to open new stores, remodel certain existing stores, and improve the efficiency of its distribution center. The Company expects to meet these cash requirements through a combination of available cash, operating cash flows and borrowings from its existing revolving credit facility. The Company has available net operating loss carryforwards of approximately $16.5 million for income tax purposes. The Company expects to fund its near-term cash requirements principally from its existing cash balances and by borrowing under its revolving credit facility. The Company expects to finance its long-term expansion plan with internally and externally generated funds, which may include borrowings under future credit facilities, and through the sale of equity, equity- related or debt securities. There can be no assurance that financing will be available in amounts, or at rates or on terms and conditions acceptable to the Company. -15- Seasonality The Company's operations are highly seasonal and approximately 45% of its revenues fall within the Company's fourth quarter which coincides with the Christmas selling season. New stores are expected to be opened throughout the year, but generally before the Christmas selling season, which will make the Company's fourth quarter revenues an even greater percentage of the total year's revenues. Operations during the first three quarters are not expected to be profitable for the foreseeable future. Impact of Inflation The impact of inflation on the Company's results of operations has not been significant. The Company attempts to pass on increased costs by increasing product prices over time. Year 2000 Compliance: The Company has completed its review of year 2000 ("Y2K") issues and does not believe that the business impact or cost of these issues is material. The following areas have been reviewed: Corporate Information Systems: All corporate information systems, both those developed by the Company and critical systems developed by third parties, have been developed in an environment and programming language which are not affected by the year 2000 problem, and no software changes are needed. In-Store Systems: All in-store and point of sale (POS) software was developed by an outside software firm which has provided written assurance of the systems' year 2000 compliance. The Company has tested the systems' Y2K compliance during the first quarter of calendar 1999 and found the systems to be Y2K compliant. Personal Computers: Some personal computers used to run the Company's in-store POS systems are not year 2000 compliant. BIOS upgrades are available for these computers and are being obtained at little or no cost. Embedded Systems: None of the Company's critical operations are dependent on embedded systems. Year 2000 compliance of telephone and alarm systems, which may contain embedded date-sensitive circuits, will be verified with their respective vendors by the end of the first half of calendar 1999. Risk: There can be no assurance that the Company's systems will be timely converted or that the failure of such systems to be year 2000 compliant will not have a material adverse affect on the Company's results of operations, financial condition or liquidity. Management believes that the risks associated with the year 2000 problem are minimal. The greatest risk to the business is the possibility of an interruption in service from a vendor who is not properly prepared. Any impact to the business in this "worst case" scenario would be minimized by the likelihood that it will occur during the traditionally slower first quarter. -16- Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOURES ABOUT MARKET RISKS. No response is required to this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Reference is made to Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information with respect to directors and executive officers of the Company is incorporated herein by reference to the information set forth under the captions "Election of Directors", "Executive Officers", and "Compliance with Section 16(a) of the Exchange Act" in the Company's Proxy Statement for its 1999 Annual Meeting of Stockholders (the "1999 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION. Information with respect to executive compensation is incorporated herein by reference to the information set forth under the captions, "Committees, Meetings, and Director Compensation" and "Executive Compensation", excluding the information under the captions "Executive Compensation - Compensation and Stock Option Committee Report on Executive Compensation" and "Executive Compensation - Performance Graph", in the Company's 1999 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information with respect to security ownership is incorporated herein by reference to the information set forth under the caption "Security Ownership" in the Company's 1999 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information with respect to certain relationships and related transactions is incorporated herein by reference to the information, if any, set forth under the caption "Certain Relationships and Related Transactions" in the Company's 1999 Proxy Statement. -17- PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements Page Independent auditor's report F-1 Consolidated balance sheets at January 30, 1999 and January 31, 1998 F-2 Consolidated statements of operations for the years ended January 30, 1999, January 31, 1998 and February 1, 1997 F-3 Consolidated statements of stockholders' equity for the years ended January 30, 1999, January 31, 1998, and February 1, 1997 F-4 Consolidated statements of cash flows for the years ended January 30, 1999, January 31, 1998,and February 1, 1997 F-5 Notes to consolidated financial statements F-6 2. Schedules
VIII. Valuation and qualifying accounts (available on request) All other schedules have been omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto. The individual financial statements and schedules of Registrant have been omitted since consolidated financial statements have been filed and Registrant is primarily an operating company and all subsidiaries included in the consolidated financial statements filed are wholly-owned subsidiaries. Shareholders may obtain a copy of any exhibit not contained herein free of charge by writing to Kenneth S. Betuker, Vice President, Chief Financial Officer and Secretary, Noodle Kidoodle, Inc., 6801 Jericho Turnpike, Syosset, NY 11791. -18- 3. Index to Exhibits (a) The following documents are filed as Exhibits to this document:
Exhibit Number Description of Document 3.1 Certificate of Incorporation of the Registrant currently in effect, with all amendments thereto (Incorporated by reference to Exhibit 3.1 to Registrant's Form S-1 Registration Statement (Commission File No. 33-65029), effective February 13, 1996) 3.2 (New York) Certificate of Merger of Noodle Kidoodle, Inc., a New York corporation, into Noodle Kidoodle, Inc., a Delaware corporation (Incorporated by reference to Exhibit 3.2 to Registrant's Form S-1 Registration Statement (Commission File No. 33-65029), effective February 13, 1996) 3.3 Agreement and Plan of Merger of Noodle Kidoodle, Inc., a New York corporation, and Noodle Kidoodle, Inc., a Delaware corporation (Incorporated by reference to Exhibit 3.3 to Registrant's Form S-1 Registration Statement (Commission File No. 33-65029), effective February 13, 1996) 3.4 By-laws of Registrant (Incorporated by reference to Exhibit 3.4 to Registrant's Form S-1 Registration Statement(Commission File No. 33- 65029), effective February 13, 1996) 3.5 (Delaware) Certificate of Merger of Noodle Kidoodle, Inc., a New York corporation into Noodle Kidoodle, Inc., a Delaware corporation (Incorporated by reference to Exhibit 3.5 to Registrant's Form S-1 Registration Statement (Commission File No. 33-65029), effective February 13, 1996) 3.6 Plan of Merger of C.W.P.W., Inc., a Michigan corporation, into Noodle Kidoodle, Inc., a Delaware corporation (Incorporated by reference to Registrant's Annual Report on Form 10-K for fiscal year ended February 1, 1997.) -19-
3.7 Certificate of Ownership and Merger of C.W.P.W., Inc., a Michigan corporation, into Noodle Kidoodle, Inc., a Delaware corporation (Incorporated by reference to Registrant's Annual Report on Form 10-K for fiscal year ended February 1, 1997.) 3.8 Amended and Restated By-Laws dated November 12, 1997 (Incorporated by reference to Exhibit 3.4 to Registrant's Form S-1 Registration Statement (Commission File No. 33-65029), effective February 13, 1996 and Registrant's Report on Form 8-K dated November 21, 1997) 3.9 Amendment to Article I and II, Section 3 of the Amended and Restate Bylaws of the Registrant (Incorporated by reference to Registrant's Report on Form 8-K dated March 11, 1998 and August 31, 1998) 4.1 Rights Agreement, dated as of May 1, 1998, between Registrant and Chase Mellon Shareholder Services, L.L.C., as Rights Agent (Incorporated by reference to Registrant's Report on Form 8-K dated March 11, 1998 and the exhibits filed therewith) 10.1 Stock Incentive Plan and Outside Directors Stock Option Plan, dated April 26, 1994 (Incorporated by reference to Registrant's Form S-8 Registration Statement (Commission File No. 33- 82104), effective July 26, 1994 and the exhibits filed therewith) 10.2 Employment Agreement by and between Registrant and Stanley Greenman dated as of February 1, 1998. 10.3 Employment Agreement by and between Registrant and Stewart Katz dated as of February 1, 1998. 10.4 Non-Contributory Insured Medical Reimbursement Plan (Incorporated by reference to Exhibit 10.05 to Registrant's Annual Report on Form 10-K for the fiscal year ended January 30, 1993) 10.5 Agreement and Plan of Merger dated February 1, 1994 by and between Registrant and certain wholly-owned subsidiaries of the Registrant (Incorporated by reference to Exhibit 10.08 to Registrant's Annual Report on Form 10-K for fiscal year ended January 29, 1994) -20- 10.6 Amendment to Outside Directors Stock Option Plan, dated December 13, 1995 (Incorporated by reference to Exhibit 10.6 to Registrant's Form S- 1 Registration Statement (Commission File No. 33- 65029), effective February 13, 1996) 27.0* Financial Data Schedule
(b) The following documents are filed as Schedules to this Document: Schedule Number Description of Document VIII Valuation and Qualifying Accounts for the Fiscal Years Ended January 30, 1999, January 31, 1998 and February 1, 1997 * Filed herewith -21- 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. NOODLE KIDOODLE, INC. (Registrant) April 30, 1999 BY: /s/Stanley Greenman Stanley Greenman Chairman of the Board, Chief Executive Officer 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 date indicated. /s/Stanley Greenman /s/Robin Farkas Stanley Greenman Robin Farkas, Director Chairman of the Board, Chief Executive Officer, and Treasurer /s/Lester Greenman (Principal Executive Officer) Lester Greenman, Director /s/Stewart Katz /s/Joseph Madenberg Stewart Katz, President, Joseph Madenberg, Director Chief Operating Officer, Assistant Secretary and Director /s/Melvin C. Redman Melvin C. Redman, Director /s/Kenneth S. Betuker Kenneth S. Betuker Vice President, /s/Barry W. Ridings Chief Financial Officer Barry W. Ridings, Director and Secretary (Principal Financial and Accounting Officer) /s/Robert Stokvis Robert Stokvis, Director -22- INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Noodle Kidoodle, Inc. We have audited the accompanying consolidated balance sheets of Noodle Kidoodle, Inc. and Subsidiaries as of January 30, 1999 and January 31, 1998 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended January 30, 1999. 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 audits. We conducted our audits 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Noodle Kidoodle, Inc. and Subsidiaries as of January 30, 1999 and January 31, 1998 and the results of their operations and cash flows for each of the years in the three year period ended January 30, 1999 in conformity with generally accepted accounting principles. Janover Rubinroit, LLC /s/ Janover Rubinroit, LLC Garden City, New York March 17, 1999 F-1 NOODLE KIDOODLE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 30, 1999 and January 31, 1998 January 30, January 31, 1999 1998 (In thousands except share data)
ASSETS Current assets: Cash and cash equivalents $10,188 $11,099 Merchandise inventories 21,074 16,821 Prepaid expenses and other current assets 3,780 3,024 Total current assets 35,042 30,944 Property, plant and equipment at cost 32,138 24,820 Less accumulated depreciation 9,238 6,306 22,900 18,514 Other assets 20 23 Total Assets $57,962 $49,481 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 21 $ 20 Trade accounts payable 8,576 6,048 Accrued expenses and taxes 9,738 7,726 Net liabilities of discontinued operations 1,303 1,173 Total current liabilities 19,638 14,967 Long-term debt 712 733 Commitments and contingencies - - Stockholders' equity: Preferred stock-authorized 1,000,000 shares, par value $.001 (none issued) - - Common stock-authorized 15,000,000 shares, par value $.001; issued 8,506,901 and 8,503,901 shares, respectively 9 9 Capital in excess of par value 43,087 43,063 Accumulated deficit (1,747) (5,499) 41,349 37,573 Less treasury stock, at cost, 910,861 and 924,261 shares, respectively 3,737 3,792 Total stockholders' equity 37,612 33,781 Total Liabilities and Stockholders' Equity $57,962 $49,481 The accompanying notes are an integral part of the financial statements.
F-2 NOODLE KIDOODLE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Fiscal Years Ended January 30, 1999, January 31, 1998 and February 1, 1997 January 30, January 31, February 1, 1999 1998 1997 (In thousands except share data)
Net sales $107,886 $81,664 $59,410 Costs and expenses: Cost of products sold including buying and warehousing costs 65,405 50,388 36,542 Selling and administrative expenses 38,804 33,552 31,124 104,209 83,940 67,666 Operating income (loss) 3,677 (2,276) (8,256) Interest income 269 448 839 Interest expense (194) (90) (75) Income (loss)before income taxes 3,752 (1,918) (7,492) Income taxes - - - Net income (loss) $3,752 $(1,918) $(7,492) Basic income (loss) per share $ .49 $ (.25) $ (1.00) Diluted income (loss) per share $ .49 $ (.25) $ (1.00) The accompanying notes are an integral part of the financial statements.
F-3 NOODLE KIDOODLE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Fiscal Years Ended January 30, 1999, January 31, 1998, and February 1, 1997 (In thousands) Capital in Retained Treasury Stock Common Stock Excess of Earnings (at Cost) Shares Amount Par Value (Deficit) Shares Amount
Balance - February 3, 1996 6,300 $ 6 $26,955 $ 3,911 924 $ 3,792 Common stock offering, net 2,180 3 16,007 - - - Exercise of stock options 24 - 101 - - - Net loss for the year - - - (7,492) - - Balance - February 1, 1997 8,504 9 43,063 (3,581) 924 3,792 Net loss for the year - - - (1,918) - - Balance - January 31, 1998 8,504 9 43,063 (5,499) 924 3,792 Exercise of stock options 3 - 24 - (13) (55) Net income for the year - - - 3,752 - - Balance - January 30, 1999 8,507 $ 9 $43,087 $(1,747) 911 $ 3,737 The accompanying notes are an integral part of the financial statements.
F-4 NOODLE KIDOODLE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Fiscal Years Ended January 30, 1999, January 31, 1998 and February 1, 1997 (In thousands)
January 30, January 31, February 1, 1999 1998 1997 Cash flows from operating activities: Net income (loss) from continuing operations $ 3,752 $(1,918) $(7,492) Adjustments to reconcile to net cash provided (used): Depreciation 2,932 2,490 1,926 Loss on disposal of fixtures and equipment - 243 327 Decrease (increase) in non-cash working capital accounts: Merchandise inventories (4,253) 497 (6,990) Prepaid expenses and other current assets (756) (272) 291 Trade accounts payable 2,528 999 (234) Accrued expenses and taxes 2,012 634 2,734 Net cash provided by (used in) continuing operations 6,215 2,673 (9,438) Net cash provided by (used in) discontinued operations 130 (1,252) (1,585) Net cash provided by (used in) operating activities 6,345 1,421 (11,023) Cash flows from investing activities: Proceeds from sales of property - discontinued operations - - 7,594 Property additions (7,318) (1,664) (9,397) Other 3 27 5 Net cash used in investing activities (7,315) (1,637) (1,798) Cash flows from financing activities: Proceeds from sale of common stock - - 16,010 Increase in long-term debt - - 780 Maturities of long-term debt (20) (18) (9) Exercise of employee options 79 - 101 Net cash provided by (used in) financing activities 59 (18) 16,882 Net increase (decrease) in cash and cash equivalents (911) (234) 4,061 Cash and cash equivalents - beginning of year 11,099 11,333 7,272 Cash and cash equivalents - end of year $10,188 $11,099 $11,333 Supplemental cash flow information: Net cash paid during the year for: Interest expense $ 195 $ 91 $ 75 Income taxes, net - - - The accompanying notes are an integral part of the financial statements.
F-5 NOODLE KIDOODLE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES: The following summary of the Company's major accounting policies is presented to assist in the interpretation of the financial statements. Principles of consolidation The consolidated financial statements include the accounts of the parent company and all subsidiary companies. All significant intercompany balances and transactions are eliminated in consolidation. The Company and its subsidiaries are on a 52-53 week accounting period ending on the Saturday closest to January 31. The fiscal years for the financial statements presented all consist of 52 week periods. Description of business The Company is a specialty retailer of a broad assortment of educationally oriented, creative and non-violent children's products, including toys, books, games, video and audio tapes, computer software, crafts, and other learning products. Cash and cash equivalents All highly liquid investments purchased with a maturity of three months or less are considered to be cash equivalents. The Company places its temporary cash investments in high grade instruments with high credit quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Earnings per share Effective December 15, 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share". Statement No. 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Under the new requirements for calculating earnings per share, the dilutive effect of stock options will be excluded from basic earnings per share but included in the computation of diluted earnings per share. Property, plant and equipment Plant and equipment is stated at cost and is depreciated on a straight-line basis over estimated useful lives. Repairs and maintenance are charged to expense as incurred; renewals and betterments, which significantly extend the useful lives of existing plant and equipment, are capitalized. Leasehold improvements are amortized over the terms of the respective leases or over their useful lives, whichever is shorter. Useful lives of other plant and equipment vary among the classifications, but range for buildings and improvements from 10-40 years and for fixtures and equipment from 4-10 years. F-6 Pre-opening expenses Costs incurred in the opening of new stores are amortized over the first twelve months of Operations. Income taxes Deferred taxes provided under SFAS No. 109 result principally from temporary differences in depreciation, capitalized inventory costs, restructuring charges, and allowance for doubtful accounts. Use of 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 at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Fair value disclosures The carrying amounts of cash and cash equivalents, other current assets, accounts payable and other current liabilities approximates fair value because of the short term maturity of these instruments. The stated value of long-term debt, including current maturities, approximates fair value. NOTE 2 - PROPERTY, PLANT AND EQUIPMENT: Fiscal Years Ended January 30, January 31, 1999 1998 (In thousands)
Land $ 272 $ 272 Building and improvements 1,896 1,734 Fixtures and equipment 14,839 11,511 Leasehold improvements 15,131 11,303 32,138 24,820 Less accumulated depreciation (9,238) (6,306) $22,900 $18,514
F-7 NOTE 3 - ACCRUED EXPENSES AND TAXES: Fiscal Years Ended January 30, January 31, 1999 1998 (In thousands)
Payroll and related benefits $1,721 $1,082 Rent and occupancy 2,051 1,802 Insurance 226 472 Advertising 2,103 845 Restructuring charges - 697 Fixtures and equipment 302 206 Other 3,335 2,622 $9,738 $7,726
NOTE 4 - LONG-TERM DEBT: Long-term debt consists of the following: Fiscal Years Ended January 30, January 31, 1999 1998 (In thousands)
Revolving credit facility $ - $ - 8% unsecured promissory note, due in quarterly installments through 2016 733 753 733 753 Less current maturities 21 20 $712 $733
The Company has a revolving credit agreement which provides for maximum borrowings of up to $20 million until June 27, 2000. Borrowings may not exceed certain percentages of, and are collateralized by, inventories, receivables, and certain other assets. The agreement provides for an annual collateral management fee and a commitment fee on the unused portion of the commitment. Outstanding borrowings bear interest, at the option of the Company, based on the prime rate or LIBOR. Interest rates on borrowings ranged from 7.75% to 8.50% during the year. The agreement contains certain covenants which among other items, limits the payment of cash dividends when borrowings under the agreement are outstanding. Annual maturities of long-term debt during the next five years are $21,000, $23,000, $25,000, $26,000 and $28,000. F-8 NOTE 5 - COMMITMENTS AND CONTINGENCIES: Minimum annual commitments under non-cancelable leases in effect at January 30, 1999 are as follows (in thousands):
2000 $ 11,927 2001 12,783 2002 12,868 2003 12,650 2004 12,615 Thereafter 51,121 $113,964
At January 30, 1999, the Company and its subsidiaries were lessees of office space, stores and transportation equipment under various leases. In addition to fixed rents and rentals based on sales, certain of the leases require the payment of taxes and other costs. Some leases include renewal options. Rental expense (income) for operating leases was as follows: Fiscal Years Ended January 30, January 31, February 1, 1999 1998 1997 (In thousands)
Minimum rentals $ 7,853 $6,979 $ 5,430 Taxes and other costs 2,775 2,637 2,115 Sublease rentals (73) - (295) $10,555 $9,616 $ 7,250_
Litigation The Company is not party to any legal proceedings other than claims and lawsuits arising in the normal course of its business which, in the opinion of the Company's management, are not individually or in the aggregate material to its business. Employment agreements The Company has employment agreements with certain officers. Those agreements provide for minimum salary levels as well as for incentive bonuses which are payable if specified performance goals are attained. F-9 NOTE 6 - CAPITAL STOCK: Common Stock On February 13, 1996, the Company completed a public offering of 2.18 million shares (including the over allotment option) of common stock at $8.00 per share. Proceeds from the offering, net of commissions and expenses, were approximately $16.0 million. The net proceeds from the offering were used primarily to finance the Company's store expansion plans as well as for general corporate purposes, including approximately $1.0 million to improve the Company's MIS systems capabilities. Preferred stock The Company has 1,000,000 authorized (none-issued) shares of preferred stock, par value $0.001, consisting of 440,000 shares of Series A Junior Participating Preferred reserved for use under the Stockholders' Rights Plan and the remainder for other unspecified purposes. Stockholders' rights plan on March 11, 1998, the Board of Directors of the Company adopted a new Stockholder Rights Plan (the "Plan") to succeed the Stockholder Rights Plan that expired on May 15, 1998. Under the terms of the Plan, which expires on May 15, 2008, the Company declared a dividend of one preferred stock purchase right for every outstanding share of common stock to stockholders of record on May 15, 1998. The rights are exercisable, if not previously redeemed, under certain circumstances involving actual or potential acquisitions of 15% or more of the outstanding Common stock of the Company. Each right represents a right to buy from the Company 1/100th of a share of Series A Junior Participating Stock, par value .001, at a price of $25.00, subject to certain anti-dilution adjustments. The rights are redeemable by the Company at a redemption price of $.001 per right. NOTE 7 - STOCK OPTIONS: Stock incentive plan The Company's Stock Incentive Plan (the "Plan") for key employees and consultants provides for the granting of stock options, stock appreciation rights (SAR's), dividend equivalent rights, restricted stock, unrestricted stock and performance shares and is administered by the Compensation and Stock Option Committee (the "Committee") of the Board of Directors of the Company. The plan provides for automatic increases in the number of shares available for issuance under the plan of 2% per year of the total outstanding shares of common stock at the end of the immediately preceding year. In no event may the sum of the number of shares subject to then outstanding awards under all of the Company's stock-based incentive plans ("Stock Plans") and the shares then available for future awards under the Stock Plans exceed 15% of the number of then outstanding shares of Common Stock, together with the shares subject to the then outstanding awards under the Stock Plans and the shares then available for future awards under the Stock Plans. F-10 Under the terms of the Plan, options granted may be either non-qualified or incentive stock options and the exercise price, determined by the Committee, shall be at least 75% (100% in the case of an incentive stock option) of the fair market value of a share on the date of grant. SAR's may be granted (subject to specified restrictions) in connection with all or any part of, or independently of, any option granted under the Plan. No SAR's, dividend equivalent rights, restricted stock, unrestricted stock or performance shares have been granted to date under the Plan. Options granted under the Plan are exercisable in installments; however, no options are exercisable within one year or later than ten years from the date of grant. Stock option plan for outside directors The Company's Outside Directors Stock Option Plan reserves 125,000 shares of common stock for the issuance of stock options related to this plan. The Stock Option Plan for Outside Directors provides that upon the initial election to the Board, each eligible director is granted an option to purchase 5,000 shares of common stock and 4,000 shares each year thereafter at the fair market value on the date of grant. The options have a term of five years and become exercisable 50% on the first anniversary of the date of grant and 50% on the second anniversary of the date of grant. The following summary sets forth the activity under the Company's stock incentive plans: Fiscal Years Ended January 30, 1999 January 31, 1998 Weighted Avg. Weighted Avg. Shares Exercise Price Shares Exercise Price
Outstanding at beginning of year 519,825 $4.97 630,859 $ 5.81 Granted 291,600 $4.83 247,000 $ 3.39 Exercised (16,400) $4.82 - Terminated (67,900) $5.26 (358,034) $ 5.36 Outstanding at end of year 727,125 $4.92 519,825 $ 4.97 Exercisable at end of year 232,913 $5.56 141,406 $ 6.01 Available for grant at end of year 198,036 128,800
F-11 The following table summarizes information concerning currently outstanding and exercisable options: Outstanding Options Options Exercisable Range of Weighted Average Exercise Number Remaining Number Weighted Average Prices Outstanding Contractual Life Exercisable Exercise Price
$ 3.00 - $ 5.00 409,250 8.56 65,413 $ 3.50 $ 5.01 - $10.00 311,375 6.81 162,625 $ 6.20 $10.01 - Up 6,500 6.75 4,875 $13.13 727,125 232,913
The Company has adopted the disclosure only provisions of SFAS No. 123, "Accounting For Stock Based Compensation", and, accordingly, no compensation cost has been recognized for the stock option plans. The fair value of options at date of grant was estimated using the Black- Scholes model with the following weighted average assumptions: Fiscal Years Ended January 30, January 31, February 1, 1999 1998 1997
Expected life (years) 5 5 5 Risk-free interest rate 4.55% 6.0% 6.0% Expected volatility 50.1% 44.7% 45.3% Dividend yield 0.0% 0.0% 0.0%
Had compensation for options granted in Fiscal 1999, 1998 and 1997 been determined consistent with SFAS No. 123, the Company's net income (loss) and net income (loss) per share would approximate the pro-forma amounts indicated below. Fiscal Years Ended January 30, January 31, February 1, 1999 1998 1997 (In thousands except share data)
Net income (loss) $3,546 $(2,042) $(7,558) Basic income (loss) per share $ .47 $ (.27) $ (1.01) Diluted income (loss) per share $ .46 $ (.27) $ (1.01)
The effects of applying SFAS No. 123 in this pro-forma disclosure are not indicative of future effects. SFAS No. 123 does not apply to awards prior to Fiscal 1996, and additional awards in future years are anticipated. The weighted average fair value of options granted was $2.27, $1.61, and $3.25 for Fiscal 1999, 1998 and 1997 respectively. F-12 NOTE 8 - TAXES ON INCOME: There is no current or deferred tax expense for fiscal 1998 and 1997. The Company utilized net operating loss carryforwards in 1999 and was in a loss position in 1998 and 1997. Income taxes (benefit) consist of the following: Fiscal Years Ended January 30, January 31, February 1, 1999 1998 1997 (In thousands)
Current: Federal $ 100 $ - $ - State and local - - - 100 - - Deferred (100) - - $ - $ - $ -
A reconciliation of the statutory federal income tax rate attributable to loss from continuing operations to the effective income tax rate is as follows:
Federal at statutory rates 34% (34)% (34)% State and local taxes net of federal tax benefits 4 (4) (4) Losses with no current tax benefit - 38 38 Utilization of loss carryforwards (38) - - -% -% -%
F-13 Deferred income taxes result from temporary differences in the recognition of revenue and expense for tax and financial statement purposes. The components of deferred tax assets (liabilities) consist of the following: Fiscal Years Ended January 30, January 31, 1999 1998 (In thousands)
Net operating loss carryforward $6,282 $ 8,133 Capitalizable inventory costs 342 262 Discontinued operations 711 641 Allowance for doubtful accounts 485 485 Restructured operations and other 680 597 Gross deferred tax assets 8,500 10,118 Depreciation (827) (508) Gross deferred tax liabilities (827) (508) Net deferred tax assets 7,673 9,610 Valuation allowance 7,673 9,610 Net tax assets $ - $ -
The Company has available net operating loss carryforwards of approximately $16,500 which expire between 2011 and 2013 and alternative minimum tax credit carryovers of approximately $100 which can be carried forward indefinitely. NOTE 9 - EMPLOYEE RETIREMENT PLANS: The Company has a 401-k savings plan designed to provide additional financial security during retirement by providing eligible employees with an incentive to make regular savings contributions. The Company matches 10% of the first 4% of compensation contributed by the employee. Effective during fiscal year 2000, the Company's matching contribution will increase to 25% of the first 5% of compensation contributed. The Company in the past participated in various multi-employer pension plans. Contributions and costs were determined in accordance with the provisions of negotiated labor contracts or terms of the plans. The Company does not administer or control the plans. One of the plans covering certain former employees, to which the Company and many other employers made contributions, has been terminated. The Employee Retirement Income Security Act ("ERISA") imposes certain liabilities upon employers who are contributors to a multi-employer pension plan in the event of withdrawal or termination of such a plan. During the year ended February 1, 1997 the Company agreed to settle its liability for approximately $780,000, payable in quarterly installments over 20 years, plus interest at 8% per annum. The liability was provided for in prior periods and was charged to discontinued operations in those periods. F-14 NOTE 10 - EARNINGS PER SHARE: The following table sets forth the computation of basic and diluted income (loss) per share: Fiscal Years Ended January 30, January 31, February 1, 1999 1998 1997 (In thousands except share data)
Numerator Net income (loss)- numerator for basic and diluted income (loss) per share $ 3,752 $ (1,918) $ (7,492) Denominator Denominator for basic income (loss) per share - weighted average shares 7,588 7,580 7,488 Effect of dilutive securities - employee stock options 134 7 113 Denominator for diluted earnings per share - weighted average shares and dilutive potential common shares 7,722 7,587 7,601 Income (loss) per share: Basic $ .49 $ (.25) $ (1.00) Diluted $ .49 $ (.25) $ (1.00) In accordance with FASB No. 128, as a result of losses from continuing operations in fiscal 1998 and 1997, the inclusion of employee stock options were antidilutive and, therefore, were not utilized in the computation of diluted earnings per share.
NOTE 11 - INDUSTRY SEGMENTS: The Company operates substantially in one industry segment which includes the retail sales of children's toys and other products. F-15 NOTE 12 - INTERIM FINANCIAL DATA (UNAUDITED): First Second Third Fourth Quarter Quarter Quarter Quarter (In thousands except share data)
Fiscal Year Ended January 30, 1999: Sales $18,045 $18,431 $22,670 $48,740 Gross profit 7,015 7,342 8,854 19,270 Net income (loss) $(1,049) $(1,525) $(1,554) $ 7,880 Net income (loss) per share: Basic $ (.14) $ (.20) $ (.20) $ 1.04 Assuming dilution $ (.14) $ (.20) $ (.20) $ 1.00 Weighted Average Shares: Basic 7,580 7,587 7,592 7,594 Assuming dilution 7,670 7,699 7,661 7,860 Fiscal Year Ended January 31, 1998: Sales $15,535 $13,654 $15,641 $36,834 Gross profit 5,871 5,115 5,942 14,348 Net income (loss) $(2,003) $(2,719) $(2,399) $ 5,203 Net income (loss) per share: Basic $ (.26) $ (.36) $ (.32) $ .69 Assuming dilution $ (.26) $ (.36) $ (.32) $ .69 Weighted Average Shares: Basic 7,580 7,580 7,580 7,580 Assuming dilution 7,580 7,587 7,585 7,594 The Company's sales are highly seasonal. Net income (loss) per share calculations for each of the quarters are based on the weighted average number of shares outstanding for each period and the sum of the quarters may not necessarily be equal to the full year income (loss) per share amount.
F-16 SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS For the Fiscal Years Ended January 30, 1999, January 31, 1998 and February 1, 1997 (In thousands)
Column A Column B Column C Column D Column E Additions (1) (2) Balance at Charged to Charged to Deductions Balance at beginning of costs and other end of year expenses accounts year For estimated losses in collection: Year ended January 30, 1999 $ 1,277 $ - $ - $ - $ 1,277 Year ended January 31, 1998 $ 1,277 $ - $ - $ - $ 1,277 Year ended February 1, 1997 $ 1,277 $ - $ - $ - $ 1,277 All amounts are included in discontinued operations.
EX-27 2
5 1000 12-MOS JAN-30-1999 FEB-01-1998 JAN-30-1999 10,188 0 0 0 21,074 35,042 32,138 9,238 57,962 19,638 0 0 0 9 37,603 57,962 107,886 107,886 65,405 65,405 38,804 0 194 3,752 0 3,752 0 0 0 3,752 0.49 0.49
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