UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
F O R M 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended May 4, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from_______to_________
Commission file number 0-00167
-------
THE VILLAGE GREEN BOOKSTORE, INC.
---------------------------------------------------------------
(Exact name of Small Business Issuer as specified in its charter)
New York 16-1181167
------------------------------ ------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) I.D. number)
1357 Monroe Avenue
Rochester, New York 14618
--------------------------------------
(Address of principal executive offices)
(716) 442-1151
----------------------------------------------
(Issuer's telephone number, including area code)
Check whether the Issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of common stock outstanding as of June 12, 1997 was
3,741,355.
<PAGE>
THE VILLAGE GREEN BOOKSTORE, INC.
---------------------------------
INDEX
-----
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Consolidated Statement of Operations
for the three months ended
May 4, 1997 and April 28, 1996...........................3
Consolidated Balance Sheets as of
May 4, 1997 and February 2, 1997.........................4
Consolidated Statement of Cash Flows for the
three months ended May 4, 1997 and
April 28, 1996 ..........................................6
Notes to Financial Statements............................7
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations...........9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................12
Item 3. Defaults Upon Senior Securities.........................12
Item 6. Exhibits and Reports on Form 8-K........................12
Index to Exhibits.................................................14
Exhibit 11........................................................15
2
<PAGE>
Item 1. Financial Statements.
THE VILLAGE GREEN BOOKSTORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MAY 4, 1997 AND APRIL 28, 1996
May 4, 1997 April 28, 1996
----------- --------------
Net Sales $ 1,176,901 $ 2,597,470
Cost of Goods Sold 756,994 1,661,988
----------- -----------
Gross Profit $ 419,907 $ 935,482
Selling, General, and
Administrative Expenses 695,462 1,356,245
----------- -----------
Loss from Operations $ (275,555) $ (420,763)
Other Income (Expense)
Interest Expense (27,985) (21,000)
Restructuring Costs (21,965) 0
Amortization of Offering Costs 0 (23,781)
Other Income 1,227 5,505
----------- -----------
Total Other Income (Expense) $ (48,723) $ (39,276)
----------- -----------
Loss before Income taxes $ (324,278) $ (460,039)
Income Tax 0 0
----------- -----------
Net Loss $ (324,278) $ (460,039)
=========== ===========
Per Share Amounts Net Loss $ (0.09) $ (0.12)
=========== ===========
See Notes to Consolidated Financial Statements
3
<PAGE>
THE VILLAGE GREEN BOOKSTORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 4, 1997 AND APRIL 28, 1996
ASSETS
Current Assets May 4, 1997 February 2, 1997
- -------------------------------- ----------------- -----------------
Cash and Cash Equivalents $ 11,966 $ 140,417
Receivables 57,538 80,725
Merchandise Inventories 2,483,803 2,784,531
Prepaid Expenses 90,588 95,594
------------------ -----------------
Total Current Assets $ 2,643,895 $ 3,101,267
Property & Equipment, net of
Accumulated Depreciation 1,239,110 1,331,313
Other Assets 57,802 57,802
------------------ -----------------
Total Assets $ 3,940,807 $ 4,490,382
================== =================
See Notes to Consolidated Financial Statements
4
<PAGE>
THE VILLAGE GREEN BOOKSTORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 4, 1997 AND FEBRUARY 2, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities May 4, 1997 February 2, 1997
- -------------------------------------- ---------------- ----------------
Accounts Payable $ 1,550,347 $ 1,746,379
Current Portion of Debt 923,556 1,001,519
Accrued Payroll Expense 32,269 47,577
Accrued Taxes Payable 27,542 57,534
Other Current Liabilities 211,426 189,015
---------------- ----------------
Total Current Liabilities $ 2,745,140 $ 3,042,024
Long-Term Debt 348,377 277,090
Stockholders' Equity
- --------------------------------------
Common Stock, $.001 par
Authorized 10,000,000 shares
Issued 3,741,355 shares and 3,741,255
shares at May 4, 1997 and February 2,
1997, respectively
Outstanding, 3,741,355 shares and
1,710,880 shares at May 4, 1997 and
February 2, 1997, respectively 3,741 3,741
Additional Paid-In Capital 8,117,454 8,117,154
Retained Deficit (7,273,905) (6,949,627)
---------------- ----------------
Total Stockholders' Equity $ 847,290 $ 1,171,268
---------------- ----------------
Total Liabilities and Stockholders' Equity $ 3,940,807 $ 4,490,382
================ ================
See Notes to Consolidated Financial Statements
5
<PAGE>
THE VILLAGE GREEN BOOKSTORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
QUARTERS ENDED MAY 4, 1997 and APRIL 28, 1996
Operating Activities May 4, 1997 April 28, 1996
- -------------------------------------- ----------- --------------
Net Loss $(324,278) $(460,039)
Adjustments to reconcile Net Loss to Net
Cash Used in Operating Activities:
Depreciation and amortization
Other expenses 92,503 130,827
Changes in Operating Assets and Liabilities:
Receivables 23,187 320
Inventory 300,728 859,792
Other current assets 5,006 37,039
Accounts payable (196,032) (710,918)
Accrued payroll expense (15,308) 2,043
Accrued sales taxes payable (29,992) (12,407)
Other current liabilities 22,411 (138,212)
--------- ---------
Net Cash Used In Operating Activities (121,775) (291,555)
Investing Activities:
Purchase of Property and Equipment 0 (40,312)
Net Cash Used In Investing Activities 0 (40,312)
Financing Activities:
Payments on Long-Term Debt (6,676) (15,013)
Debt Issuance Costs 0 (25,000)
Proceeds from Issuance of Common Stock 0 300
-------- ---------
Net Cash Provided by (Used In) Financing
Activities (6,676) (39,713)
--------- ---------
Net Change In Cash (128,451) (371,580)
Balance at Beginning of Year 140,417 383,918
--------- ---------
Cash Balance at End of Period $ 11,966 $ 12,338
========= =========
See Notes to Consolidated Financial Statements
6
<PAGE>
THE VILLAGE GREEN BOOKSTORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The consolidated balance sheet as of May 4, 1997 and the
consolidated statements of income for the three months ended May 4,
1997 and April 28, 1996, the consolidated statements of changes in
financial position for the three months ended May 4, 1997 and April
28, 1996 have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal
adjustments) necessary to present fairly the financial position,
results of operations and changes in financial position at those dates
have been made. The operating results for the quarter ended May 4,
1997 are not necessarily indicative of the results that may be
expected for the fiscal period ending February 1, 1998 as the
Company's sales volume is seasonal.
Note 2. On April 28, 1994, the Company consummated a private placement
with respect to an aggregate of $1.2 million Principal Amount 7%
Convertible Senior Subordinated Debentures of the Company due two
years from the date of issuance, convertible into shares of the
Company's Common Stock at any time prior to maturity, unless
previously redeemed, at an initial conversion price of $5.00 per
share.
The Debentures are subordinated in right of payment to any future
bank indebtedness up to $1 million and are expressly senior in right
of payment to all other Company obligations (but subordinated to the
payment of any future bank or institutional indebtedness up to $1
million). The Debentures are redeemable, in whole only, from time to
time at the option of the Company at a redemption price equal to 100%
of the principal amount thereof plus accrued interest, provided that
the Debentures may not be redeemed prior to maturity unless, during
any period of 20 consecutive trading days ending within 30 days prior
to the giving of the notice of redemption, the market price for the
Common Stock is at least 125% of the conversion price.
On October 11, 1996, the Company and VGBS Acquisition Corporation
("VGBS") consummated a Credit Agreement dated as of September 265,
1996, whereby VGBS agreed to loan up to $1.2 million to the Company
pursuant to a Senior Secured Promissory Grid Note dated September 25,
1996 (the "Note"). Advances of $300,000 were scheduled to be made
quarterly, contingent upon the Company complying with certain
representations, warranties and covenants contained in the Credit
Agreement. The first $300,000 was advanced on September 26, 1996. As
of May 15, 1997, no subsequent amounts have been advanced under the
Credit Agreement. The Note bears interest at the rate of 9% per annum
with principal and interest payable in equal quarterly installments
commencing June 30, 1997 through June 2000. Pursuant to the Credit
Agreement, the Company has agreed that all amounts advanced by VGBS
pursuant to the Note will be used by the Company solely to repay
7
<PAGE>
principal amounts owed by the Company to the holders of the Company's
Convertible Debentures (the "Debentures") as cited below.
The Company has also entered into a Security Agreement with VGBS
pursuant to which the Company has granted VGBS a security interest in
all assets of the Company to secure the indebtedness incurred by the
Company pursuant to the Credit Agreement and Note. The Security
Agreement is senior in right of payment and in collateral except for
up to $500,000 for the financing of merchandise inventories. VGBS has
agreed to subordinate its security interest under the Security
Agreement to the holders of the Debentures in the event VGBS breaches
its obligation to fund any installment due the Company under the
Credit Agreement and Note.
On April 28, 1994, the Company consummated a private placement of
convertible Debentures with an aggregate value of $1.2 million (which
in previous years had been referred to as 7% Convertible Senior
Subordinated Debentures). These Debentures are convertible into
240,000 shares of the Company's Common Stock at a conversion price of
$5.00 per share. The Debentures had an original maturity date of April
1996. During fiscal 1997 and 1996, the Debentures were not converted
or redeemed, in whole or in part. The Company was unable to pay its
obligation for the Debentures which was due in April 1996. In May
1996, the Debenture holders entered into an agreement with the Company
whereby the interest rate on the Debentures was increased from 7% to
9%. In accordance with the Credit Agreement cited above, a principal
payment of $300,000 was made to the Debenture holders on September 25,
1996.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
OVERVIEW
- --------
The Company competes with a diverse group of national book retailers,
including WaldenBooks, Borders Bookshop, Barnes & Noble, B. Dalton, Crown Books,
Encore Books and Books-A-Million. In recent years, many competing national
chains have expanded in size and number of outlets, and have developed and
opened superstores within many of the Company's existing markets. As a result of
these competitive conditions, the Company closed seven stores during the year
ended February 2, 1997 and one more store subsequent to the first quarter of
1997.
On April 18, 1997, the Company announced that it had reached an agreement
in principle with CD Titles, Inc. and an underwriter, whereby the Company will
be merged into a subsidiary of CD Titles, Inc. The new corporation created as a
result of the merger had planned to issue and sell $5,000,000 of its Common
Stock to the public. The agreement in principle was subject to the customary
contingencies, including due diligence by the parties, shareholder approval and
market factors. The Company was recently notified by CD Titles, Inc. and the
Underwriters that the merger and follow-on offering would not go forward. The
Company now intends to seek out other interested acquisition candidates and
continues to seek other means of raising capital. As a means of generating
short-term capital, the Company may be required to liquidate and close at least
one additional store. No assurances can be given that the Company will be
successful in obtaining financing from other sources or that the Company will be
able to continue as a going concern.
FINANCIAL POSITION
- ------------------
Cash and cash equivalents amounted to $11,966 at May 4, 1997 as compared to
$140,417 at February 2, 1997. Cash decreased as a result of reduction in
accounts payable due to payments made primarily to vendors and increased
operating costs. Inventories decreased by $300,728 from $2,784,531 at February
2, 1997 to $2,483,803 at May 4, 1997. Other current liabilities, accrued payroll
and accrued sales taxes payable decreased, in the aggregate, by $22,889 from
$294,126 at February 2, 1997 to $271,237 at May 4, 1997.
9
<PAGE>
RESULTS OF OPERATIONS
Quarter Ended
-----------------------------------------
Statement of Operations Data May 4, 1997 April 28, 1996
- ----------------------------------- ------------------ -----------------
Net Sales
As a Percentage of Net Sales: 100% 100%
Same Stores 100.0 65.8
New Stores 0 0
Closed Stores 0 34.2
------------------ -----------------
Total Net Sales 100.0 100.0
Cost of Sales 64.3 64.0
------------------ -----------------
Gross Profit 35.7 36.0
Selling, General and Administrative
Expenses 59.1 52.2
------------------ -----------------
Income from Operations (23.4) (16.2)
Net Income (27.6) (17.7)
================== =================
Net sales for the three months ended May 4, 1997 were $1,176,901 as
compared with $2,597,470 for the three months ended April 28, 1996, a decrease
of 54.7%. Comparable store sales decreased by 31.2% for the corresponding
period.
Gross profit margin for the three months ending May 4, 1997 was 35.7% as
compared to 36.0% for the same period last year. In absolute dollars, gross
profit decreased from $935,432 for the three months ended April 28, 1996 to
$419,907 for the three months ended May 4, 1997. The decrease in absolute gross
profit dollars of $515,575 resulted from decreased sales volume during the
current fiscal year.
Selling, general, and administrative expenses for the three months ended
May 4, 1997 decreased by $660,783 or 48.7%. The decrease is attributable to the
operation of fewer stores during the first quarter ended May 4, 1997. The
Company is continuing to make concerted efforts to reduce its operating costs.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital was ($101,245) at May 4, 1997, as compared to $59,243
as of February 2, 1997. The Company's auditors have stated that there is
substantial doubt about the Company's ability to continue as a going concern.
Competitive conditions have adversely affected the Company's liquidity. The
Company is currently pursuing other avenues of financing although no assurances
can be given that it will be successful in raising additional capital or that
the Company will be able to continue a going concern.
10
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS.
Star Video Entertainment LP v. The Village Green Bookstore, Inc. The
Company has been named a defendant in an action commenced in Rochester City
Court on January 3, 1997 by Star Video Entertainment LP. The complaint seeks
judgment based upon unpaid invoices in the amount of $2,885.04 plus interest,
litigation costs and attorney's fees. Plaintiff recently filed a motion for
summary judgment seeking $1,073.71 plus interest, costs and attorney's fees. The
Company contends that no amount is owed to plaintiff and intends to vigorously
defend this action. At this time, the outcome of this matter cannot be assessed
with certainty.
Shurman Fine Papers, Inc. v. The Village Green Bookstore, Inc. The Company
has been named a defendant in an action commenced in Supreme Court of the State
of New York for Monroe County on January 24, 1997 by Shurman Fine Papers, Inc.,
a supplier of greeting cards. Plaintiff seeks judgment for unpaid invoices in
the total amount of $59,143.42 plus interest and costs, which amount the Company
contends is greatly over stated. In addition, the Company intends to return
seasonal cards, which will further reduce the total amount owed to approximately
$35,000. Settlement negotiations have begun in an attempt first to agree upon
the amount of the liability, and then to agree upon a payment plan. At this
time, the outcome of this matter cannot be assessed with certainty.
Sunrise Publications, Inc. v. The Village Green Bookstore, Inc. The Company
has been named a defendant in an action commenced in Supreme Court of the State
of New York for Monroe County on February 4, 1997 by Sunrise Publications, Inc.,
a greeting card supplier. Plaintiff seeks judgment for unpaid invoices in the
total amount of $28,468.88 plus interest and litigation costs. The Company
contends that the amount owed has been over stated by plaintiff. The Company
also intends to return seasonal cards, which will further reduce the total
amount owed to approximately $18,000. Settlement negotiations have begun in an
attempt first to agree upon the amount of the liability, and then to agree upon
a payment plan. At this time, the outcome of this matter cannot be assessed with
certainty.
Empire State News Corp. v. The Village Green Bookstore, Inc. A default
judgment in the amount of $14,343.84 recently was obtained in an action
commenced in Buffalo City Court on or about March 6, 1997 by Empire State News
Corp. Plaintiff has indicated a willingness to settle this matter, and the
Company has prepared a payment proposal to be made to plaintiff. At this time,
the outcome of this matter cannot be assessed with certainty.
11
<PAGE>
Andrews & McMeel v. The Village Green Bookstore, Inc. The Company has been
named a defendant in a suit commenced on or about April 3, 1997 in Rochester
City Court. Plaintiff seeks judgment based upon unpaid invoices in the amount of
$14,187.76 plus interest and costs. The Company contends that the amount owed is
$7,500.15. At this time, the outcome of this matter cannot be assessed with
certainty.
International Playthings, Inc. v. The Village Green Bookstore, Inc. The
Company has been named a defendant in a suit commenced in Rochester City Court
on or about March 21, 1997. Plaintiff seeks judgment based upon unpaid invoices
in the total amount of $3,656.47. The amount owed in this case is not in
dispute, and counsel have spoken concerning payment terms. At this time, the
outcome of this matter cannot be assessed with certainty.
International Periodical Distributors, Inc. v. The Village Green Bookstore,
Inc. The Company has been named a defendant in an action commenced in Supreme
Court for the State of New York in Erie County by a magazine distributor.
Plaintiff seeks judgment based upon unpaid invoices in the total amount of
$51,972.24 plus interest and costs. The Company contends that the amount owed is
$45,679.18. At this time, the outcome of this matter cannot be assessed with
certainty.
Glen Eagle Center v. The Village Green Bookstore, Inc. During the first
quarter of fiscal 1997, the Company received a Complaint from Glen Eagle Center
in connection with the closing of its stores. Glen Eagle is claiming $20,000 in
lost rents and consequential damages. The Company has counterclaimed for breach
of the Lease by Glen Eagle and intends to vigorously defend such claims.
Benderson 85-1 Trust v. The Village Green Bookstore, Inc. The Company has
been named a defendant in an action commenced on August 24, 1994 in the Supreme
Court of the State of New York for Erie County involving a dispute on a Lease in
the amount of $42,392.07. The plaintiff, Benderson 85-1 Trust, is the landlord
of the Company's former Tonawanda, New York store, which the Company closed in
January 1994. The Tonawanda store was operated by the Company's subsidiary,
Niagara Books, Inc., which was the party named on the Lease. The Company
believes it has meritorious defenses and intends to vigorously defend this
action.
William W. Shuster, Jr. v. The Village Green Bookstore, Inc. The Company
has been named a defendant in an action commenced on August 3, 1994 in the
Supreme Court of the State of New York for Monroe County by William W. Shuster,
Jr., as plaintiff, involving a "slip and fall" on the Company's property for
damages in the amount of $2 million. The Company carries $1 million worth of
liability insurance which the Company believes should be sufficient to cover any
possible award of damages to the plaintiff. Further, the Company believes it has
meritorious defenses and intends to vigorously defend this action.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
---------
Exhibit 11
Exhibit 27 - Financial Data Schedule (Electronic filing only)
(b) Reports on Form 8-K.
--------------------
None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE VILLAGE GREEN BOOKSTORE, INC.
Dated: June 18, 1997 BY: /s/ Raymond C. Sparks
------------------------------------
Raymond Sparks,
President
Treasurer
Chief Operating Officer
Chief Financial Officer
14
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
Number Number
- ------ ------
11 Computation of Earnings per Common Share...................... 16
15
Exhibit 11
THE VILLAGE GREEN BOOKSTORE, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended
May 4, 1997
--------------------
Primary Earnings Per Share1
- ----------------------------------------------------
Net Loss After Taxes $ (324,278)
Weighted Average Common
Shares Outstanding 3,741,273
Primary Earnings Per Share $ (0.09)
_________________________________
1 Warrants and options, which are potentially dilutive, were not considered
in the calculations because these items were anti-dilutive due to the net
losses incurred during the reporting period.
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE VILLAGE GREEN BOOKSTORE, INC. FOR THE THREE MONTHS
ENDED MAY 4, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1998
<PERIOD-START> FEB-03-1997
<PERIOD-END> MAY-04-1997
<CASH> 11,966
<SECURITIES> 0
<RECEIVABLES> 57,538
<ALLOWANCES> 0
<INVENTORY> 2,483,803
<CURRENT-ASSETS> 2,643,895
<PP&E> 2,489,950
<DEPRECIATION> 1,250,842
<TOTAL-ASSETS> 3,940,807
<CURRENT-LIABILITIES> 2,745,140
<BONDS> 348,377
0
0
<COMMON> 3,741
<OTHER-SE> 843,549
<TOTAL-LIABILITY-AND-EQUITY> 3,940,807
<SALES> 1,176,901
<TOTAL-REVENUES> 1,176,901
<CGS> 756,994
<TOTAL-COSTS> 756,994
<OTHER-EXPENSES> 695,462
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,985
<INCOME-PRETAX> (324,278)
<INCOME-TAX> 0
<INCOME-CONTINUING> (324,278)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (324,278)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
