ZANY BRAINY chain of kids' stores files for Chapter 11 protection

<br>PHILADELPHIA (AP) _ Zany Brainy Inc., a retailer of educational toys, books and other products for children, said Tuesday it has filed for Chapter 11 protection from its creditors. <br><br>Tom Vellios,

Tuesday, May 15th 2001, 12:00 am

By: News On 6

PHILADELPHIA (AP) _ Zany Brainy Inc., a retailer of educational toys, books and other products for children, said Tuesday it has filed for Chapter 11 protection from its creditors.

Tom Vellios, president and chief executive, blamed the company's rapid expansion, including the opening of 27 new stores and the acquisition of a chain of 60 Noodle Kidoodle stores, and a difficult retail climate for the retailer's financial problems.

The ``absence of 'hot' product'' compounded the situation and led to declining sales, he added.

A filing under Chapter 11 of U.S. bankruptcy laws typically gives companies a chance to keep operating while it develops a financial reorganization plan.

Vellios said the company had a commitment for a $115 million financing package subject to approval of the bankruptcy court that it believes will allow it to keep stores stocked while it restructures.

``We expect that very quickly customers will see a flow of merchandise back into our stores,'' Vellios said.

Vellios said he did not know when the reorganization plan would involve closing any stores. The company currently has 187 stores in 34 states.

In addition to pouring a large sum into opening its new stores, the company lost at least $9.3 million last year on a failed Internet joint venture.

Zany Brainy had had its credit line frozen since March, when First Union Corp. said it was in default, and a toy manufacturer had stopped shipments last month until the company secured new credit.

Trading in its shares was suspended on the Nasdaq Stock Market where it last traded at 33 cents a share.