<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED August 1, 1998
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 0-27920
Garden Botanika, Inc.
---------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Washington 91-1464962
---------- ----------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8624 154th Avenue NE
Redmond, Washington 98052
-------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(425) 881-9603
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 _
THE REGISTRANT HAD 7,069,098 SHARES OF COMMON STOCK, $0.01 PAR VALUE,
OUTSTANDING AT August 1, 1998.
<PAGE> 2
GARDEN BOTANIKA, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION .................................................. 3
ITEM 1 - FINANCIAL STATEMENTS ........................................ 3
Balance Sheets .............................................. 10
Statements of Operations .................................... 11
Statements of Cash Flows .................................... 12
Notes to Financial Statements ............................... 13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS .................................................. 3
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ................................................. 7
PART II - OTHER INFORMATION ...................................................... 8
ITEM 1 - LEGAL PROCEEDINGS ........................................... 8
ITEM 2 - CHANGES IN SECURITIES ....................................... 8
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES ............................. 8
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS ......... 8
ITEM 5 - OTHER INFORMATION ........................................... 8
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K ............................ 8
Exhibit 11 - Calculation of Earnings Per Common and
Common Equivalent Share ..................................... 15
Exhibit 10.33 - Amendment Number One to Loan and Security
Agreement with Foothill Capital Corporation ................. 16
</TABLE>
2
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PART I - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS -
The unaudited balance sheet as of August 1, 1998, audited balance sheet
as of January 31, 1998 and unaudited statements of operations and cash flows of
Garden Botanika, Inc. (the "Company") for the quarterly and six-month periods
ended August 1, 1998 and August 2, 1997 are attached. Notes to the unaudited
financial statements are also attached.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -
This discussion should be read in conjunction with the "Management's
Discussion and Analysis" section included in the Annual Report on Form 10-K/A
dated May 29, 1998, which has previously been filed with the Securities and
Exchange Commission.
Certain statements in this discussion constitute "forward-looking
statements" and involve risks, uncertainties and other factors which may cause
the Company's actual performance to be materially different from the performance
expressed or implied by such statements. Such factors include, among others: (a)
the Company's losses and failure to achieve profitability to date; (b) its
limited resources and dependence on a line of credit; (c) continuing declines in
its comparable store sales; (d) the Company's ability to cost-effectively close
or restructure the rent of some of its most unprofitable stores; (e)
identification and response to emerging industry trends, including the ability
to successfully develop and introduce new products and maintain inventory levels
appropriate for demand; (f) the Company's ability to successfully implement
strategies in new channels of distribution, and (g) other factors set forth in
the Company's Annual Report on Form 10-K/A dated May 29, 1998 and other filings
with the Securities and Exchange Commission. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
The results of operations for the quarterly period ended August 1, 1998
are not necessarily indicative of the results to be expected for the full fiscal
year. In each of the past three fiscal years, 39% to 49% of the Company's annual
net sales have been realized during its fourth fiscal quarter, particularly
during the November and December holiday selling period. The Company expects
this pattern to continue during the current fiscal year. The Company's quarterly
results of operations may also fluctuate significantly as a result of a variety
of other factors, including, among others, increases or decreases in comparable
store sales, adverse weather conditions, shifts in the timing of holidays,
shifts in the timing of promotions and catalog mailings and changes in the
Company's product mix.
In August 1998, the Company renegotiated its loan agreement with
Foothill Capital Corporation ("Foothill"). Based on results of operations, the
Company determined that it would be in default of certain of its financial
covenants as of the end of the second quarter of fiscal 1998 and subsequently
notified Foothill. At the Company's request following the actual default, the
Company and Foothill amended the loan agreement to waive the default and
provide, among other things, revised financial covenants. See "Liquidity and
Capital Resources." The Company currently relies upon its credit facility with
Foothill (including its ability to stay within the revised covenants) to finance
its operating costs and purchases of inventory.
The Company had 280 stores in operation at August 1, 1998, plus two
temporary store locations, compared to 269 stores at August 2, 1997 and 280
stores at January 31, 1998 which, in addition to the new temporary locations,
reflects the opening of one new store and the closing of one poorly performing
store in the first quarter of fiscal 1998. In September 1998, the Company
commenced the closure of seven of its most poorly performing stores, for which
the Company had previously taken reserves. In addition, the Company plans for
the additional closing of some of its most unprofitable stores in fiscal 1998.
3
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The Company has opened two temporary outlet locations and has converted five of
its less profitable stores into clearance centers, which are no longer included
in the Company's comparable store base. The outlet locations and clearance
centers are intended to sell discounted merchandise in the normal course of
business as new product lines are introduced to replace older ones and
periodically freshen the Company's overall product assortment. The average age
of the Company's stores at August 1, 1998 was 36 months.
The Company reports on a 52/53-week year, consisting of four 13-week
quarters. The fiscal year ends on the Saturday nearest the end of January.
RESULTS OF OPERATIONS -
(a) COMPARISON OF THE QUARTERLY PERIODS ENDED AUGUST 1, 1998 AND AUGUST
2, 1997.
Net Sales. Net sales for the second quarter of fiscal 1998 were $20.86
million, compared to net sales of $24.87 million for the comparable prior
period, a decrease of 16%. Store net sales decreased $4.11 million, or 17%,
during the quarter, primarily as a result of a 22% decrease in comparable store
sales (sales for stores open at least one complete fiscal year). Management
attributes this decrease, in part, to the cumulative, ongoing impact of the
reduction in the number of pages mailed per store of its retail store catalog
mailings, resulting in the erosion of the Company's historical core customer
base consisting of 30- to 45-year old women; the elimination of certain product
sizes and types without a countervailing increase in sales of the Company's
remaining core products; and increased competition from other specialty
retailers and mass merchandisers. During the quarter, comparable store sales
declined 27% in May, 18% in June, and 19% in July. In the second quarter of
fiscal 1997, comparable store sales increased 11% in May, 12% in June and 6% in
July.
Mail order net sales declined $593,000, or 55%, in the second quarter
of fiscal 1998 versus the comparable prior period. This decline was primarily
attributable to a planned reduction in mail order catalog circulation as the
Company significantly reduced the level of prospecting for new customers and
focused its primary efforts on what it believes is its more productive and cost
effective list of customers who have previously purchased from its mail order
catalogs.
The commercial sale of specifically selected Garden Botanika products
to a national retailer totaling $196,000 is also included in total sales for the
quarter, as are sales for the Company's outlet and clearance stores of $385,000.
In addition, total sales for the quarter include the recognition of $128,000 in
revenue from sales of annual memberships in the Company's discount shopping
"Garden Club" program, which membership sales are amortized over the course of a
year.
Gross Margin. The dollar amount of gross margin decreased $3.16
million, or 39.1%, from the second quarter of fiscal 1997. As a percentage of
net sales, gross margin, which is net of buying and occupancy costs, was 23.6%
in the second quarter of fiscal 1998 versus 32.5% in the comparable prior
period. Approximately 90% of this decline was attributable to the effect of
relatively fixed store occupancy costs of a larger store base in a period of
overall declining sales.
Operating Expenses.
Stores and Catalog. The dollar amount of store and catalog
expenses decreased by $928,000, or 9.6%, from the comparable prior period,
primarily as a result of planned reductions in advertising and other store
operating expenses in the second quarter of fiscal 1998, as well as the
elimination of certain remerchandising expenses incurred in the comparable prior
period. As a percentage of net sales, store and catalog expenses increased to
41.6% from 38.6% in the second quarter of fiscal 1997. The increase in store
expenses as a percentage of sales is primarily attributable to the decreased
leverage on store expenses due to the decline in sales volumes.
General and Administrative. The dollar amount of general and
administrative expenses decreased by $134,000, or 5.0%, from the comparable
prior period. As a percentage of net sales, general
4
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and administrative expenses increased to 12.1% from 10.7% in the second quarter
of fiscal 1997 due to the overall decline in net sales.
Preopening and Facility Relocation Expense. Preopening and facility
relocation expense ("Preopening Expense") was $340,000, or 1.6% of net sales, in
the second quarter of fiscal 1998, during which the Company wrote off the
unamortized balance of leasehold improvements at two remodeled stores. In the
second quarter of fiscal 1997, during which the Company opened 10 stores,
Preopening Expense was $82,000, or 0.3% of net sales.
Provision for Store Closings. During the second fiscal quarter of 1998,
the Company recorded a provision for store closing costs of $3.55 million to
close additional stores in fiscal 1998. The provision includes both the
estimated cost of asset write-offs and closure expenses relating to extricating
itself from lease obligations, of which $3.17 million reduced property and
equipment and $375,000 was provided for other store closure costs.
Operating Loss. For the reasons explained above, the Company's
operating loss increased 138.4%, from $4.2 million, or 17.1% of net sales, to
$10.17 million, or 48.7% of net sales in the respective quarters.
Interest (Expense) Income, Net. Net interest expense during the second
quarter of fiscal 1998 was $3,000, compared to net interest income of $103,000,
or 0.4% of net sales, during the comparable prior period. This decline is
primarily attributable to the decrease in the level of cash investments and the
amortization of loan fees in connection with the Company's credit line.
Income Tax Provision. The Company did not record an income tax
provision for the second quarter of either fiscal 1998 or fiscal 1997 due to its
pre-tax losses.
Net Loss and Per Share Data. For the reasons explained above, the
Company's net loss increased 144.4%, from $4.16 million, or $0.59 per share,
during the second quarter of fiscal 1997 to $10.17 million, or $1.44 per share,
during the second quarter of fiscal 1998. There were approximately 7.07 million
common and common equivalent shares outstanding for both periods.
(b) COMPARISON OF THE SIX-MONTH PERIODS ENDED AUGUST 1, 1998 AND AUGUST
2, 1997.
Net Sales. Net sales for the first six months of fiscal 1998 were
$42.57 million, compared to net sales of $48.79 million for the comparable prior
period, a decrease of 13%. Store net sales declined $5.97 million, or 13%,
during the period, primarily due to a 19% decrease in comparable store sales. In
the first six months of fiscal 1997, comparable store sales increased 6%.
Mail order net sales declined $1.58 million, or 57%, in the first six
months of fiscal 1998 versus the comparable prior period. This decline was
primarily attributable to a planned reduction in mail order catalog circulation
as the Company significantly reduced the level of prospecting for new customers
and focused its primary efforts on what it believes to be its more productive
and cost effective list of customers who have previously purchased from its mail
order catalogs.
Gross Margin. The dollar amount of gross margin decreased $5.78
million, or 34.4%, from the first six months of fiscal 1997. As a percentage of
net sales, gross margin was 25.9% versus 34.5% in the comparable prior period.
The decline in gross margin as a percentage of net sales reflected primarily the
effect of relatively fixed store occupancy costs of a larger store base in a
period of declining sales.
Operating Expenses
Stores and Catalog. The dollar amount of store and catalog
expenses decreased by $1.9 million, or 10.1%, from the comparable prior period,
primarily as a result of planned reductions in advertising and other store
operating expenses as well as the elimination of certain remerchandising
expenses incurred in the second quarter of fiscal 1997. As a percentage of net
sales, store and catalog expenses
5
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increased to 40.6% from 39.4% in the first six months of fiscal 1997. The
increase is attributable to decreased leverage on store expenses due to the
decline in sales volumes.
General and Administrative. The dollar amount of general and
administrative expenses decreased by $190,000, or 3.6%, from the comparable
prior period. As a percentage of net sales, general and administrative expenses
increased from 10.7% to 11.8% as a result of the overall decline in net sales.
Preopening and Facility Relocation Expense. Preopening Expense was
$350,000, or 0.8% of net sales, in the first six months of fiscal 1998, during
which the Company opened one store and wrote off the unamortized balance of
leasehold improvements at two remodeled stores. In the comparable prior period,
when the Company opened 16 stores and completed the relocation and expansion of
one of its existing stores, Preopening Expense was $104,000, or 0.2% of net
sales.
Operating Loss. For the reasons explained above, the Company's
operating loss increased 96%, from $7.76 million to $15.21 million, in the
respective six-month periods. Expressed as a percentage of net sales, the
operating loss increased to 35.7% from 15.9% in the comparable prior period.
Interest (Expense) Income, Net. Net interest income during the first
six months of fiscal 1997 was $46,000, or 0.1% of net sales, compared to net
interest income of $375,000, or 0.7% of net sales, during the comparable prior
period. The decrease reflects the decline in the level of cash investments from
the comparable prior period.
Income Tax Provision. The Company did not record an income tax
provision for the first six months of either fiscal 1998 or fiscal 1997 due to
its pre-tax losses.
Net Loss and Per Share Data. For the reasons explained above, the
Company's net loss increased 105.4% from $7.38 million, or $1.04 per share,
during the first six months of fiscal 1997 to $15.17 million, or $2.15 per
share, during the comparable 1998 period. There were approximately 7.07 million
weighted average common and common equivalent shares outstanding for both
periods.
LIQUIDITY AND CAPITAL RESOURCES -
The Company began fiscal 1998 with cash and cash equivalents of $8.59
million. During the first six months of the year, cash was used to fund the
Company's net loss ($7.5 million net of depreciation and other non-cash
write-offs) and fixed asset additions of $1.0 million primarily for the opening
of one new store and the remodeling of two stores. Following the uses of cash
described above, the Company ended the second quarter with cash and cash
equivalents of $2.23 million and checks drawn in excess of bank balances under
its integrated cash management program of $3.54 million.
Under the terms of its .0 million credit facility dated as of April 29,
1998 (the "Loan Agreement") with Foothill, the Company was subject to certain
financial covenants, including a covenant that its losses before interest,
taxes, depreciation and amortization for the six months ending July 31, 1998
would not exceed a certain amount. Before drawing on its credit facility with
Foothill, as a result of the deterioration in the results of the Company's
operations, the Company determined that, as of July 31, 1998, its losses
exceeded the covenanted amount and that it was therefore in default of the Loan
Agreement. At the Company's request, the Company and Foothill amended the Loan
Agreement as of August 12, 1998 (the "Loan Amendment") by providing revised
financial covenants that increased permissible losses, interest rates and other
elements of the loan pricing.
The Loan Amendment provides interest at prime plus two percent, and the
LIBOR rate of the original Loan Agreement is no longer available. Credit is
generally available at the lesser of (a) a variable percentage ranging from 55%
to 65% of eligible finished goods inventory, or (b) 80% of the inventory
liquidation value, as determined by an appraisal, less any reserves. The amount
and kinds of reserves that
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Foothill is entitled to deduct from the borrowing base was also increased under
the terms of the Loan Amendment. Subject to change following the completion of
an inventory appraisal which is now being conducted, the Company is currently
entitled to borrow approximately $1.9 million net of reserves, of which
approximately $1.2 million is currently outstanding. The Company's outstanding
balance under the line is cyclical and fluctuates significantly, depending on
such factors as the weekly retail sales cycle, increases in eligible inventory,
the timing of catalog mailings, as well as monthly rent and biweekly payroll
obligations. Provided it continues to meet certain financial covenants, the
Company expects that the amount it is entitled to borrow will increase as it
acquires additional inventory in anticipation of the holiday season. As part of
the Loan Amendment, the Company also agreed to close a certain number of its
unprofitable store locations by January 31, 1999, and Foothill waived the
Company's prior default of the unamended financial covenants.
On an ongoing basis, the Company expects to continue to be able to
finance a portion of its merchandise inventory costs by using vendor credit
terms, generally ranging from 30 to 60 days. In addition to such vendor
financing, subject to its meeting certain financial conditions, the Company may
finance 55% to 65% of its inventory under the terms its credit line with
Foothill.
The Company's future plans call for the additional closing of some of
its most unprofitable stores in fiscal 1998, eight of which have closed or are
in the process of closing. In the prior year, the Company had reserved $1.89
million for estimated asset write-offs and $1.31 million for closing expenses
associated with extracting itself from lease obligations. In the second quarter
of fiscal 1998, the Company reserved an additional $3.17 million for estimated
asset write-offs and an additional $375,000 for closing expenses. As of August
1, 1998, one store had been closed and the related closing expenses were charged
against this reserve. The remaining liability for store closing expenses as of
August 1, 1998 was $1.64 million. Further assessment of the future profitability
of stores may result in additional provisions for store closings and impairment
of long-lived assets.
The Company is in the process of implementing certain marketing
initiatives, including increasing the pages and circulation of its retail
catalog mailings for the balance of fiscal 1998, and believes that the recent
levels of declines in comparable store sales are unlikely to continue throughout
the current fiscal year. Assuming operations improve as planned, the Company
further believes that its cash flow from operations and borrowings under its
credit facility will be sufficient to satisfy its currently anticipated working
capital and capital expenditure requirements through fiscal 1998. The Company's
performance, capital requirements and ability to obtain financing may vary
significantly from what is anticipated, however, depending particularly upon
continuing poor operating results and related factors, such as the willingness
of Foothill and the Company's suppliers to provide credit terms. The Company may
be required to seek additional sources of funds to support its ongoing
operations in fiscal 1998, and there can be no assurance that such funds, if
required, will be available on satisfactory terms. Failure to obtain such
financing could impair its future business, financial condition and operating
results.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -
The Company does not have investments in derivatives or financial
instruments at this time.
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PART II - OTHER INFORMATION:
ITEM 1 - LEGAL PROCEEDINGS -
See Item 3 of the Company's Form 10-K/A dated May 29, 1998, which is
incorporated by this reference herein.
ITEM 2 - CHANGES IN SECURITIES -
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES -
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION -
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
11 Calculation of Earnings Per Common and Common Equivalent Share
10.33 Amendment Number 1 to Loan and Security Agreement with
Foothill Capital Corporation, dated as of August 12, 1998
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the second quarter of
fiscal 1998.
8
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SIGNATURES:
Pursuant to the requirements 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.
GARDEN BOTANIKA, INC.
Registrant
September 15, 1998 /s/ Michael W. Luce
Date -----------------------------------------
Michael W. Luce
President and Chief Executive Officer
(Principal Executive Officer)
September 15, 1998 /s/ George W. Newman
Date -----------------------------------------
George W. Newman
Vice President & Controller
(Principal Financial and Accounting
Officer)
9
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GARDEN BOTANIKA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
AUGUST 1, JANUARY 31,
1998 1998
-------- --------
(AMOUNTS IN THOUSANDS)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,235 $ 8,594
Short-term investments 0
Inventories 19,137 23,747
Prepaid expenses:
Rent 1,663 1,640
Other 1,667 1,033
Receivable from lessors 433 550
Other 907 0
-------- --------
Total current assets 26,042 35,564
Property and equipment:
Leasehold improvements 49,993 53,030
Furniture and equipment 15,743 16,420
Equipment under capital lease 261 261
-------- --------
65,997 69,711
Less accumulated depreciation and amortization (20,401) (17,456)
-------- --------
Net property and equipment 45,596 52,255
Other assets 14 18
-------- --------
Total assets $ 71,652 $ 87,837
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Checks drawn in excess of bank balances $ 3,546 $ 6,055
Accounts payable 5,764 5,818
Accrued salaries, wages and benefits 1,235 1,536
Accrued sales tax 440 398
Reserve for store closing expenses 1,642 1,311
Other 1,806 756
-------- --------
Total current liabilities 14,433 15,874
Deferred rent and other 3,424 3,027
-------- --------
Total liabilities 17,857 18,901
Commitments
Shareholders' equity:
Preferred Stock, $.01 par value;
10,000,000 shares authorized; none issued and outstanding -- --
Common Stock, $.01 par value;
36,092,374 shares authorized; 7,069,098 issued and outstanding 98,603 98,573
Accumulated deficit (44,808) (29,637)
-------- --------
Total shareholders' equity 53,795 68,936
Total liabilities & shareholders' equity $ 71,652 $ 87,837
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
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GARDEN BOTANIKA, INC.
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
-----------------------------------------------------------------
QUARTER ENDED 26 WEEKS ENDED
--------------------------- ---------------------------
AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 20,862 $ 24,873 $ 42,568 $ 48,791
Cost of sales (including buying and occupancy costs) 15,945 16,798 31,541 31,980
-------- -------- -------- --------
Gross margin 4,917 8,075 11,027 16,811
Operating expenses:
Stores and catalog 8,671 9,599 17,283 19,219
General and administrative 2,526 2,660 5,060 5,250
Preopening and facility relocation expenses 340 81 350 104
Provision for Store Closings 3,550 3,550
-------- -------- -------- --------
Operating loss (10,170) (4,265) (15,216) (7,762)
Interest (expense) income, net (3) 103 46 375
-------- -------- -------- --------
Net loss $(10,173) $ (4,162) $(15,170) $ (7,387)
======== ======== ======== ========
Net loss per share $ (1.44) $ (0.59) $ (2.15) $ (1.04)
Weighted average common and common
equivalent shares 7,069 7,069 7,069 7,069
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
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GARDEN BOTANIKA, INC.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
26 WEEKS ENDED
---------------------------
AUGUST 1, AUGUST 2,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(15,170) $ (7,386)
-------- --------
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 4,063 3,663
Loss on retirement of property and equipment 440 --
Reserve for store closings 3,174
Changes in assets and liabilities:
Inventories 4,610 (8,610)
Prepaid rent and other assets (1,444) 1,603
Accounts payable and checks drawn in excess of bank balances (2,563) (4,007)
Accrued expenses 1,122 (39)
Deferred rent and other 397 87
-------- --------
Total adjustments 9,799 (7,303)
-------- --------
Net cash used by operating activities (5,371) (14,689)
-------- --------
Cash flows from investing activities:
Redemption (purchase) of short-term investments -- 19,661
Additions to property and equipment (1,018) (9,695)
-------- --------
Net cash provided (used by) investing activities (1,018) 9,966
-------- --------
Cash flows from financing activities:
Advances (payments) on note payable to bank -- --
Other, net 30 30
-------- --------
Net cash provided by financing activities 30 30
-------- --------
(Decrease) increase in cash and cash equivalents (6,359) (4,693)
Cash and cash equivalents, beginning of period 8,594 7,205
-------- --------
Cash and cash equivalents, end of period $ 2,235 $ 2,512
======== ========
Supplemental disclosures:
Cash paid for interest $ -- $ --
Cash paid for income taxes $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
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GARDEN BOTANIKA, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 1, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
1. The accompanying unaudited financial statements include the accounts of
Garden Botanika, Inc. (the "Company"), a Washington corporation. These financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and pursuant to the rules and
regulations of the Securities and Exchange Commission. While these statements
reflect all normal recurring adjustments which are, in the opinion of
management, necessary for fair presentation of the results of the interim
period, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K/A dated May 29, 1998, which
has previously been filed with the Securities and Exchange Commission.
2. The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the amounts of revenues and expenses reported during the period. Actual
results could differ from those estimates.
3. The results of operations for the quarterly period ended August 1, 1998 are
not necessarily indicative of the results to be expected for the full fiscal
year. In each of the past three fiscal years, 39% to 49% of the Company's annual
net sales and all of its profits have been realized during its fourth fiscal
quarter, particularly during the November and December holiday selling period.
The Company expects this general pattern to continue during the current fiscal
year. The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of other factors, including, among
others, the timing of new store openings, net sales contributed by new stores,
increases or decreases in comparable store sales, adverse weather conditions,
shifts in the timing of holidays, shifts in the timing of promotions and catalog
mailings and changes in the Company's product mix.
4. The Company's future plans call for the additional closing of some of its
most unprofitable stores in fiscal 1998, eight of which have closed or are in
the process of closing. In the prior year, the Company had reserved $1.89
million for estimated asset write-offs and $1.31 million for closing expenses
associated with extracting itself from lease obligations. In the second quarter
of fiscal 1998, the Company reserved an additional $3.17 million for estimated
asset write-offs and an additional $375,000 for closing expenses. As of August
1, 1998, one store has been closed and the related closing expenses has been
charged against this reserve. The remaining liability for store closing expenses
as of August 1, 1998 is $1.64 million. Further assessment of the future
profitability of stores may result in additional provisions for store closings
and impairment of long-lived assets.
5. Under the terms of its $10.0 million credit facility dated as of April 29,
1998 (the "Loan Agreement") with Foothill Capital Corporation ("Foothill"), the
Company entered certain financial covenants, including a covenant that its
losses before interest, taxes, depreciation and amortization for the six months
ending July 31, 1998 would not exceed a certain amount. Before drawing on its
credit facility with Foothill, as a result of the deterioration in the results
of the Company's operations, the Company determined that, as of July 31, 1998,
its losses exceeded the covenanted amount and that it was therefore in default
of the Loan Agreement. At the Company's request, the Company and Foothill
amended the Loan Agreement as of August 12, 1998 (the "Loan Amendment") by
providing revised financial covenants by increasing permissible losses, interest
rates and other elements of the loan pricing.
13
<PAGE> 14
The Loan Amendment provides interest at prime plus two percent, and the LIBOR
rate of the original Loan Agreement is no longer available. Credit is generally
available as the lesser of (a) a variable percentage ranging from 55% to 65% of
eligible finished goods inventory, or (b) 80% of the inventory liquidation
value, as determined by an appraisal, less any reserves. The amount and kinds of
reserves that Foothill is entitled to deduct from the borrowing base was also
increased under the terms of the Loan Amendment. Subject to change following the
completion of an inventory appraisal which is now being conducted, the Company
is currently entitled to borrow approximately $1.9 million net of reserves, of
which approximately $1.2 million is currently outstanding. The Company's
outstanding balance under the line is cyclical and fluctuates significantly,
depending on such factors as the weekly retail sales cycle, increases in
eligible inventory, the timing of catalog mailings, as well as monthly rent and
biweekly payroll obligations. Provided it continues to meet certain financial
covenants, the Company expects that the amount it is entitled to borrow will
increase as it acquires additional inventory in anticipation of the holiday
season. As part of the Loan Amendment, the Company also agreed to close a
certain number of its unprofitable store locations by January 31, 1998, and
Foothill waived the Company's prior noncompliance with the unamended financial
covenants.
14
<PAGE> 1
EXHIBIT 10.33
AMENDMENT NUMBER ONE TO
LOAN AND SECURITY AGREEMENT WITH
FOOTHILL CAPITAL CORPORATION
16
<PAGE> 2
AMENDMENT NUMBER ONE TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT (this
"Amendment"), is entered into as of August 12, 1998, between FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with a place of business
located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California
90025-3333, and GARDEN BOTANIKA, INC., a Washington corporation ("Borrower"),
with its chief executive office located at 8624 154th Avenue NE, Redmond,
Washington 98052.
WHEREAS Foothill and Borrower are parties to that certain Loan and
Security Agreement, dated as of April 29, 1998, (as amended to date, the "Loan
Agreement");
WHEREAS Borrower has requested Foothill to amend the Loan Agreement and
the other Loan Documents to: (i) change the interest rates charged for Advances;
(ii) revise other elements of the loan pricing under Loan Agreement; (iii)
revise the financial covenants with respect to the minimum Consolidated EBITDA;
(iv) make certain other modifications to the terms and conditions of the Loan
Agreements; and (v) waive Borrower's failure to comply with the requirements of
Sections 7.20(a) of the Loan Agreement;
WHEREAS Foothill is willing to so amend the Loan Agreement and waive
Borrower's failure to comply with the requirements of Sections 7.20(a) of the
Loan Agreement in accordance with the terms hereof upon Borrower's payment of an
Amendment Fee of $20,000 and subject to the other terms and conditions hereof;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, Foothill and Borrower hereby agree as follows:
All capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Loan Agreement.
1. Amendments to the Loan Agreement.
a. Section 1.1 of the Loan Agreement hereby is amended by
inserting each of the following definitions in their entirety:
"First Amendment means that certain Amendment Number One to
Loan and Security Agreement, dated as of August 12, 1998, between Foothill and
Borrower."
"First Amendment Closing Date means August 14, 1998."
"Loan Documents means this Agreement, the Concentration
Account Agreements, the Trademark Security Agreement, the Inventory Security
Agreement, the
1
<PAGE> 3
License Agreement, the First Amendment, any Control Agreement (from and after
the date such document is executed and delivered), any note or notes executed by
Borrower and payable to Foothill, and any other agreement entered into, now or
in the future, in connection with this Agreement."
b. Section 1.1 of the Loan Agreement hereby is amended by
deleting the following definition in its entirety and replacing it with
the following:
"Applicable Termination Rate means (a) 3.0% from and after the
Effective Date through May 6, 1999, (b) 2.0% from and after May 6, 1999 through
May 6, 2000, and (c) 1.0% thereafter."
c. Clauses (a) and (b) of Section 2.1 of the Loan Agreement
hereby are amended and restated in their entirety as follows:
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to make advances ("Advances") to Borrower in
an amount outstanding not to exceed at any one time the lesser of (i)
the Maximum Revolving Amount or (ii) the Borrowing Base. For purposes
of this Agreement, "Borrowing Base", as of any date of determination,
shall mean the result of:
(x) the lesser of (i) the Applicable Advance
rate times the value of the Eligible Inventory, or (ii) 80% of the
Inventory Liquidation Value, minus
(y) the Shrinkage Reserve, minus
(z) the aggregate amount of reserves, if any,
established by Foothill under Section 2.1(b).
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill shall have the right to establish reserves in
such amounts, and with respect to such matters, as Foothill, in its
reasonable credit judgement (from the perspective of a secured lender)
shall deem necessary or appropriate, against the Borrowing Base,
including without limitation, with respect to: (i) price adjustments,
damages, unearned discounts, returned products or other matters for
which credit memoranda are issued in the ordinary course of Borrower's
business; (ii) shrinkage, spoilage or obsolescence of Inventory; (iii)
slow moving Inventory; (iv) other sums chargeable to the Loan Account
as Obligations in accordance with any section of this Agreement; (v)
amounts owing by Borrower to any Person to the extent secured by a Lien
on, or trust over, any Property of Borrower; and (vi) such other
matters, events, conditions, or contingencies as to which Foothill, in
its reasonable credit judgment (from the perspective of a secured
lender), determines reserves should be established from time to time
hereunder, and including;
2
<PAGE> 4
(i) if Foothill has determined that Borrower
is not current in the payment of its obligations to one or more of its
real property lessors and if the claims of the affected real property
lessors would, as a function of applicable state law, have a lien on
the Inventory for unpaid rentals or other charges that would be prior
to Foothill's security interest in the Inventory, then Foothill may
create a reserve against the Borrowing Base in an amount up to the
maximum amount of the claims of such lessors that would, as a function
of applicable state law, have priority over Foothill's security
interest in the affected Inventory;
(ii) if Foothill has determined that Borrower
is not current in the payment of its obligations (including in respect
of ad valorem or sales taxes) to federal, state, or local taxing
authorities and if the claims of the affected taxing authorities would,
as a function of applicable federal or state law, have a lien on the
Inventory for unpaid taxes or other charges or assessments that would
be prior to Foothill's security interest in the Inventory, then
Foothill may create a reserve against the Borrowing Base in an amount
up to the maximum amount of the claims of such taxing authorities that
would, as a function of applicable federal or state law, have priority
over Foothill's security interest in the affected Inventory;
(iii) if Borrower's Excess Availability is
$3,000,000, or less, then Foothill may create a reserve against the
Borrowing Base in an amount up to the maximum amount of $1,000,000.
(iv) prior to the date that (1) Foothill has
completed an appraisal of the Collateral to be conducted promptly
following the First Amendment Closing Date and (2) Borrower has
consented to such changes to the terms and conditions of this Agreement
as Foothill shall reasonably request on the basis of such appraisal and
on the basis of its review of the financial condition and operating
performance of Borrower, then Foothill may create and maintain a
reserve against the Borrowing Base in an amount up to the maximum
amount of $2,000,000.
d. Clause (a) of Section 2.6 of the Loan Agreement hereby is
amended and restated in its entirety as follows:
"(a) Interest Rate. All Obligations shall bear
interest at a per annum rate of 2.00 percentage points above the
Reference Rate."
e. Clause (c) of Section 2.6 of the Loan Agreement hereby is
amended and restated in its entirety as follows:
3
<PAGE> 5
"(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, all Obligations shall bear
interest at a per annum rate equal to 6.00 percentage points above the
Reference Rate."
f. Section 2.7 of the Loan Agreement hereby is amended and
restated in its entirety as follows:
"2.7 Collection of Accounts. Borrower either (a) shall remit, on a
daily basis, all of its Collections to a Concentration Account that is
subject to a Concentration Account Agreement this is in full force and
effect as of the date of such remittance, or (b) shall deposit, on a
daily basis, all of its Collections to a deposit account of Borrower
all of the proceeds of which are remitted, on a daily basis, to the
Concentration Account that is subject to a Concentration Account
Agreement this is in full force and effect as of the date of such
deposit. All amounts received in such Concentration Account
automatically shall be wire transferred each Business Day into an
account (the "Foothill Account") maintained by Foothill at a depositary
selected by Foothill. In addition, Borrower agrees to provide reports
to Foothill on a weekly basis, in form and substance satisfactory to
Foothill, of the amount of Collections for purposes of calculating the
clearance or float charge provided for in Section 2.8."
g. Section 2.8 of the Loan Agreement hereby is amended and
restated in its entirety as follows:
"2.8 Crediting Payments; Application of Collections. The receipt of any
Collections by Foothill (whether from transfers to Foothill by the
Concentration Account Banks pursuant to the Concentration Account
Agreements or otherwise) immediately shall be applied provisionally to
reduce the Obligations outstanding under Section 2.1, but shall not be
considered a payment on account unless such Collection item is a wire
transfer of immediately available federal funds and is made to the
Foothill Account or unless and until such Collection item is honored
when presented for payment. From and after the Effective Date, Foothill
shall be entitled to charge Borrower for 2 Business Day of 'clearance'
or 'float' at the rate set forth in Section 2.6(a) or Section 2.6(c),
as applicable, on all Collections that are received by Borrower or
Foothill (regardless of whether such Collections are forwarded by the
applicable bank at which any such Collection Account is located to
Foothill, whether provisionally applied to reduce the Obligations under
Section 2.1, or otherwise). This across-the-board 2 Business Day
clearance or float charge on all Collections is acknowledged by the
parties to constitute an integral aspect of the pricing of Foothill's
financing of Borrower, and shall apply irrespective of the
characterization of whether receipts are owned by Borrower or Foothill,
and whether or not there are any outstanding Advances, the effect of
such clearance or float charge being the equivalent of charging 2
Business Day of interest on such Collections. Should any Collection
item not be honored when presented for
4
<PAGE> 6
payment, then Borrower shall be deemed not to have made such payment,
and interest shall be recalculated accordingly. Anything to the
contrary contained herein notwithstanding, any Collection item shall be
deemed received by Foothill only if it is received into the Foothill
Account on a Business Day on or before 11:00 a.m. California time. If
any Collection item is received into the Foothill Account on a
non-Business Day or after 11:00 a.m. California time on a Business Day,
it shall be deemed to have been received by Foothill as of the opening
of business on the immediately following Business Day."
h. Clauses (d) and (e) of Section 2.11 of the Loan Agreement
hereby are amended and restated in their entirety as follows:
"(d) Financial Examination, Documentation, and
Appraisal Fees. (i) Foothill's customary fee of $650 per day per
examiner, plus out-of-pocket expenses for each financial analysis and
examination (i.e., audits) of Borrower performed by personnel employed
by Foothill; plus (ii) Foothill's customary appraisal fee of $1,500 per
day per appraiser, plus out-of-pocket expenses for each appraisal of
the Collateral performed by personnel employed by Foothill; plus (iii)
the actual charges paid or incurred by Foothill if it elects to employ
the services of one or more third Persons to perform such financial
analyses and examinations (i.e., audits) of Borrower or to appraise the
Collateral; and
(e) Collateral Management Fee. On the first day of
each month during the term of this Agreement, and thereafter so long as
any Obligations are outstanding, a collateral servicing fee in an
amount equal to $8,500."
i. Section 6.17 of the Loan Agreement hereby is amended and
restated in its entirety as follows:
"6.17 Store Closings and Store Openings.
(a) Provide written notice to Foothill of each store
closing and any new store opening by Borrower or any Subsidiary of
Borrower that shall occur during the effectiveness of this Agreement
within 10 days of the date of such store closing or such new store
opening, as applicable;
(b) On or before September 15, 1998, deliver a store
closing plan acceptable to Foothill with respect to the closure of not
less than 35 of Borrower's unprofitable store locations (the "Store
Closing Program"), together with financial projections to Foothill,
reflecting the financial impact of the planned closure of such store
locations under the Store Closing Program; and
(c) On or before January 31, 1999, Borrower shall
complete the performance of each of the acts specified in the Store
Closing Program delivered to Foothill pursuant to this section,
including the closure of each of the
5
<PAGE> 7
identified store locations in accordance with the Store Closing Program
on or about the dates specified therefor therein."
j. Clause (a) of Section 7.20 of the Loan Agreement hereby is
amended and restated in its entirety as follows:
"(a) Minimum Consolidated EBITDA. Consolidated EBITDA
of not less than the amount shown below with respect to each of the
corresponding periods set forth in the table below:
<TABLE>
<CAPTION>
APPLICABLE PERIOD CONSOLIDATED
EBITDA
--------------------------------------------------------------------------------
<S> <C>
For the six months ended July 31, 1998 <$7,800.000>
--------------------------------------------------------------------------------
For the seven months ended August 31, 1998 <$9,500,000>
--------------------------------------------------------------------------------
For the eight months ended September 30, 1998 <$11,000,000>
--------------------------------------------------------------------------------
For the nine months ended October 31, 1998 <$12,200,000>
--------------------------------------------------------------------------------
For the ten months ended November 30, 1998 <$12,400,000>
--------------------------------------------------------------------------------
For the eleven months ended December 31, 1998 <$1,200,000>
--------------------------------------------------------------------------------
For the twelve months ended January 31, 1999 <$2,500,000>
--------------------------------------------------------------------------------
</TABLE>
With respect to subsequent periods, on or before January 15,
1999, Borrower shall deliver financial projections to Foothill, in form
and substance satisfactory to Foothill, for Borrower's fiscal year
beginning February 1, 1999 and ending January 31, 2000. On the basis of
such Borrower projections, on or before February 28, 1999, Foothill
shall establish required levels of minimum Consolidated EBITDA for each
of Borrower's fiscal months occurring during Borrower's fiscal year
ending January 31, 2000."
k. Section 7.21 of the Loan Agreement hereby is amended and
restated in its entirety as follows:
"7.21 Capital Expenditures. Make capital expenditures in Borrower's
fiscal year ending January 31, 1999 in excess of $1,500,000, and in any
subsequent fiscal year of Borrower in excess of the amounts to be
established by Foothill in its sole credit discretion on the basis of
Borrower's projections delivered to Foothill pursuant to Section 6.17."
l. The following new Section 7.24 of the Loan Agreement hereby
is inserted in its entirety as follows:
"7.24 Compliance with Projections; Annual Loan Clean Up Requirement.
(a) At no time during the term of this Agreement
shall the aggregate amount of all Advances outstanding hereunder exceed
the amount
6
<PAGE> 8
of indebtedness to Foothill projected by Borrower in connection with
Borrower's most recent weekly cash flow projections delivered to and
accepted by Foothill in connection with this Agreement, and
(b) In each year during which this Agreement shall
remain in force and effect, Borrower shall not have any Advances
outstanding under Section 2.1 hereof on the third Monday in December of
any such year or in any subsequent day of such year occurring
thereafter, and Borrower shall not request any new Advances hereunder
prior to the first Business Day of the following year.
2. Conditions Precedent to the Effectiveness of this Amendment. The
effectiveness of this Amendment is subject to the fulfillment, to the
satisfaction of Foothill and its counsel, of each of the following conditions:
a. The representations and warranties in this Amendment, the
Agreement as amended by this Amendment, and the other Loan Documents
shall be true and correct in all respects on and as of the date hereof,
as though made on such date (except to the extent that such
representations and warranties relate solely to an earlier date);
b. After giving effect hereto, no Event of Default or event
which with the giving of notice or passage of time would constitute an
Event of Default shall have occurred and be continuing on the date
hereof, nor shall result from the consummation of the transactions
contemplated herein;
c. No injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in
force by any governmental authority against Borrower, Foothill, or any
of their Affiliates;
d. No material adverse change shall have occurred in the
financial condition of Borrower or in the value of the Collateral that
has not been disclosed to Foothill;
e. Foothill shall have received this duly executed Amendment,
which shall be in full force and effect;
f. Foothill shall have received the First Amendment Fee of
$20,000; and
g. All other documents and legal matters in connection with
the transactions contemplated by this Amendment shall have been
delivered or executed or recorded and shall be in form and substance
satisfactory to Foothill and its counsel.
7
<PAGE> 9
3. Waiver of Violation of Certain Covenants and Conditions Subsequent.
Pursuant to Borrower's request, Lender hereby agrees to waive the Events of
Default caused by Borrower's failure to comply with the minimum Consolidated
EBITDA for the 6 months ended July 31, 1998 of <4,500,000> as set forth in
Section 7.20(a) as a result of Borrower's actual Consolidated EBITDA for this
period of <7,064,209>;
4. Representations and Warranties. Borrower hereby represents and
warrants to Foothill that (a) the execution, delivery, and performance of this
Amendment, are within its corporate powers, have been duly authorized by all
necessary corporate action, and are not in contravention of any law, rule, or
regulation, or any order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of its charter or
bylaws, or of any contract or undertaking to which it is a party or by which any
of its properties may be bound or affected, and (b) the Loan Agreement, as
amended by this Amendment, constitutes Borrower's legal, valid, and binding
obligation, enforceable against Borrower in accordance with its terms.
5. Further Assurances. Borrower shall execute and deliver all financing
statements, agreements, documents, and instruments, in form and substance
satisfactory to Foothill, and take all actions as Foothill may reasonably
request from time to time, to perfect and maintain the perfection and priority
of Foothill's security interests in the Collateral, and to fully consummate the
transactions contemplated under the Loan Agreement and this Amendment.
6. Effect on Loan Documents. The Loan Agreement, as amended hereby, and
the other Loan Documents shall be and remain in full force and effect in
accordance with their respective terms and each hereby is ratified and confirmed
in all respects. Except as expressly set forth herein, the execution, delivery,
and performance of this Amendment shall not operate as a waiver of or as an
amendment of any right, power, or remedy of Lender under the Loan Agreement, as
in effect prior to the date hereof. This amendment shall be deemed a part of and
hereby is incorporated into the Loan Agreement.
7. Miscellaneous.
a. Upon the effectiveness of this Amendment, each reference in the Loan
Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like
import referring to the Loan Agreement shall mean and refer to the Loan
Agreement as amended by this Amendment.
b. Upon the effectiveness of this Amendment, each reference in the Loan
Documents to the "Loan Agreement", "thereunder", "therein", "thereof" or words
of like import referring to the Loan Agreement shall mean and refer to the Loan
Agreement as amended by the First Amendment.
c. This Amendment shall be governed by and construed in accordance with
the laws of the State of California.
8
<PAGE> 10
d. This Amendment may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Amendment. Delivery of an
executed counterpart of this Amendment by telefacsimile shall be equally as
effective as delivery of an original executed counterpart of this Amendment. Any
party delivering an executed counterpart of this Amendment by telefacsimile also
shall deliver an original executed counterpart of this Amendment but the failure
to deliver an original executed counterpart shall not affect the validity,
enforceability, and binding effect of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
in on the date first written above.
GARDEN BOTANIKA, INC.,
a Washington corporation
By __________________________
Title:
FOOTHILL CAPITAL CORPORATION,
a California corporation
By __________________________
Title:
9
<PAGE> 1
EXHIBIT 11
GARDEN BOTANIKA, INC.
CALCULATION OF EARNINGS
PER COMMON AND COMMON EQUIVALENT SHARE
(EXHIBIT 11)
(amounts in thousands except per share data)
<TABLE>
<CAPTION>
(Unaudited)
----------------------------------------------
Quarter Ended Six Months Ended
--------------------- ---------------------
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY:
Earnings -
Net earnings (loss) applicable to common
and common equivalent shares $(10,173) $ (4,162) $(15,170) $ (7,387)
======== ======== ======== ========
Shares -
Weighted average common shares outstanding 7,069 7,069 7,069 7,069
Net effect of stock options, based on treasury stock method
using average market price(1) -- -- -- --
-------- -------- -------- --------
Weighted average common and common equivalent shares 7,069 7,069 7,069 7,069
======== ======== ======== ========
Primary earnings (loss) per common and
common equivalent share $ (1.44) $ (.59) $ (2.15) $ (1.04)
======== ======== ======== ========
</TABLE>
FULLY DILUTED:
Fully diluted earnings (loss) per share is not presented, as there were no
potentially dilutive securities.
NOTE:
(1) In the calculation of weighted average common and common equivalent
shares, nonqualified stock options and warrants to purchase common stock
are considered common stock equivalents. Such options and warrants are
converted using the treasury stock method, which assumes that the shares
issuable upon exercise of the options or warrants were outstanding for the
full period. In accordance with generally accepted accounting principles,
no common stock equivalents are shown for either the second quarter or the
first six months of either fiscal 1998 of fiscal 1997, as their effect
would have been antidilutive.
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET AS OF 8/1/98, AUDITED BALANCE SHEET AS OF 1/31/98 AND
UNAUDITED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE QUARTERLY PERIODS
ENDED 8/1/98 AND 8/2/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
QUARTERLY REPORT FOR THE QUARTERLY PERIOD ENDED 8/1/98.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> MAY-03-1998
<PERIOD-END> AUG-01-1998
<CASH> 2,235
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 19,137
<CURRENT-ASSETS> 26,042
<PP&E> 65,997
<DEPRECIATION> 20,401
<TOTAL-ASSETS> 71,652
<CURRENT-LIABILITIES> 14,433
<BONDS> 0
0
0
<COMMON> 98,603
<OTHER-SE> (44,808)
<TOTAL-LIABILITY-AND-EQUITY> 71,652
<SALES> 20,862
<TOTAL-REVENUES> 20,862
<CGS> 15,945
<TOTAL-COSTS> 11,197
<OTHER-EXPENSES> 340
<LOSS-PROVISION> 3,550
<INTEREST-EXPENSE> (3)
<INCOME-PRETAX> (4,162)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,173)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,173)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> 0
</TABLE>
