U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ] Quarterly report under Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1997 .
[ ] Transition report under Section 13 or 15(d) of the
Exchange Act
For the transition period from _______________ to
_______________.
Commission file number 1-12580 .
THE VERMONT TEDDY BEAR CO., INC.
(Exact name of small business issuer as specified in its
charter)
New York 03-0291679
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2236 Shelburne Road, Post Office Box 965
Shelburne, Vermont 05482
(Address of principal executive offices)
(802) 985-3001
(Issuer's telephone number)
Not Applicable
(Former name, former address, and former fiscal year, if
changed since
<PAGE>
last report)
Check whether the issuer (1) filed all reports required to
be filed by
Section 13 or 15(d) of the Exchange Act during the past 12
months (or
for such shorter period that the registrant was required to
file such
reports), and (2) has been subject to such filing
requirements for the
past 90 days. Yes X ; No .
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuers classes of
common equity, as of the latest practicable date: 5,173,758
shares of
Common Stock, $.05 par value per share, as of December 31,
1997.
Transitional Small Business Disclosure Format (check one):
Yes ; No X .
The Vermont Teddy Bear Co., Inc.
Index to Form 10-QSB
December 31, 1997
<PAGE>
Page
No.
Part I - Financial Information
Financial Statements
Balance Sheet as of December 31, 1997 3
Statements of Operations for the Three and Six
Months ended December 31, 1997 and 1996 4
Statements of Cash Flows for the Three and Six
Months ended December 31, 1997 and 1996 5
Notes to Financial Statements 6
Management's Discussion and Analysis 8
Part II - Other Information
Item 4. Submission of Matters to a Vote of Stockholders
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
13
Signatures
18
<PAGE>
The Vermont Teddy Bear Co., Inc.
Balance Sheet
December 31, 1997
(Unaudited)
ASSETS
Cash and cash equivalents $
1,051,704
(includes restricted cash of $360,000)
Accounts receivable, trade
42,359
Inventories
3,413,042
Prepaid expenses and other current assets
485,739
Deferred income taxes
259,016
---------
--
Total Current Assets
5,251,860
Property and equipment, net
9,254,016
Deposits and other assets
841,376
Note receivable
95,000
----------
-
Total Assets
$15,442,252
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Short term note payable $
178,175
Current portion of:
Long-term debt
188,090
Capital lease obligations
215,077
<PAGE>
Accounts payable
2,322,633
Accrued expenses
910,974
----------
-
Total Current Liabilities
3,814,949
Long-term debt, net of current portion
458,853
Capital lease obligations, net of current portion
5,863,435
Deferred income taxes
259,016
----------
-
Total Liabilities
$10,396,253
Stockholder's Equity:
Preferred stock, $.05 par value:
Authorized 1,000,000 Series A;
900,000
issued and outstanding, 90 shares.
Authorized 375,000 Series B;
10,245
issued and outstanding, 204,912 shares.
Common stock, $.05 par value:
Authorized 20,000,000 shares;
259,288
issued 5,172,750 shares;
outstanding 5,173,758 shares
Additional paid-in capital
10,577,840
Treasury stock at cost, 12,000 shares
(106,824)
Accumulated deficit
(6,594,550)
----------
-
Total Stockholder's Equity $
5,045,999
Total Liabilities and Stockholder's Equity
$15,442,252
===========
<PAGE>
<TABLE>
The Vermont Teddy Bear Co., Inc.
Statements of Operations
<PAGE>
For the Three and Six Months Ended December 31, 1997 and
1996
(Unaudited)
Three
Months Ended
Six Months Ended
Dec 31, 1997
Dec 31,
1996 Dec 31, 1997 Dec 31, 1996
<S> <C>
<C>
<C> <C>
Net Revenues $ 4,100,161
$ 4,484,977
$ 7,041,865 $ 7,409,233
Cost of Goods Sold 1,758,523
1,889,777
2,972,564 3,065,060
-----------
-----------
----------- -----------
Gross Profit 2,341,638
2,595,200
4,069,301 4,344,173
Selling, General and Administrative Expenses:
Selling Expenses 2,315,841
2,360,006
3,673,113 3,567,090
General and Administrative Expenses 925,496
716,146
1,526,859 1,364,449
-----------
-----------
----------- -----------
3,241,337
3,076,152
5,199,972 4,931,539
-----------
-----------
----------- -----------
Operating Loss (899,699)
(480,952) (1,130,671) (587,366)
Interest Income 7,930
15,416
15,255 30,928
Interest Expense (163,349)
(116,985) (323,153) (226,891)
Other Income (Loss), Net 13,690
1,591
15,931 (13,031)
-----------
-----------
----------- -----------
Loss Before Income Taxes (1,041,428)
<PAGE>
(580,930) (1,422,638) (796,360)
Income Tax Provision -
232,372
- 318,544
-----------
-----------
----------- -----------
Net Loss (1,041,428)
(348,558) (1,422,638) (477,816)
Preferred Stock Dividends (18,000)
(18,000) (36,000) (36,000)
-----------
-----------
----------- -----------
Net Loss -- Common Stockholders ($ 1,059,428)
($
366,558) ($ 1,458,638) ($ 513,816)
===========
===========
=========== ===========
Basic Net Loss Per Common Share ($ 0.20)
($
0.07) ($ 0.28) ($ 0.10)
===========
===========
=========== ===========
Diluted Net Loss Per Common Share
($ 0.20)
($
0.07) ($ 0.28) ($ 0.10)
===========
===========
=========== ===========
Weighted Average Number of
Common Shares Outstanding 5,173,327
5,160,750
5,168,230 5,160,750
===========
===========
=========== ===========
Weighted Average Number of
Diluted Common Shares Outstanding 5,173,327
5,160,750
5,168,230 5,160,750
===========
===========
=========== ===========
<PAGE>
</TABLE>
<PAGE>
The Vermont Teddy Bear Co., Inc.
Statements of Cash Flows
For the Six Months Ended December 31, 1997 and 1996
(Unaudited)
1997 1996
Cash Flows From Operating Activities:
Net Loss ($1,422,638) ($
477,816)
Adjustments to reconcile net income (loss)
to net cash used for operating activities
Depreciation and amortization 485,010
461,652
Loss on sale/disposal of fixed assets 137,633
18,191
Changes in assets and liabilities:
Accounts receivable, trade 3,945
(76,246)
Inventories (110,729)
(1,137,741)
Prepaid and other current assets (98,792)
(244,885)
Deposits and other assets (582,485)
(279,307)
Accounts payable (239,903)
902,116
Accrued expenses and other liabilities 217,627
92,374
Income taxes payable -
(304,251)
--------- ------
---
Net cash used for operating activities (1,610,332)
(1,045,913)
Cash Flows From Investing Activities:
Acquisition of property and equipment (56,155)
(439,016)
Proceeds from sale of fixed assets 38,888
-
--------- ------
---
Net cash used for investing activities (17,267)
(439,016)
Cash Flows From Financing Activities:
Borrowings of short-term debt 313,136
357,104
<PAGE>
Borrowings of long-term debt 200,000
809,760
Payments of short-term debt (684,961)
(457,991)
Payments of long-term debt (3,369,152)
(73,031)
Proceeds from sale-leaseback
of building and property 5,863,874
-
Principal payments on capital
lease obligations (98,175)
(50,771)
Issuance of common stock,
exercise of stock options 13,008
-
Issuance of preferred stock -
501,132
--------- ------
---
Net cash provided by financing activities 2,237,730
1,086,203
Net Increase (Decrease) in
Cash and Cash Equivalents 610,131
(398,726)
Cash and Cash Equivalents, Beginning of Period 441,573
1,121,500
Cash and Cash Equivalents, End of Period $1,051,704
$ 722,774
==========
==========
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest 326,844
225,788
Cash paid for taxes -
1,218
Supplemental Disclosures of Non-Cash Investing and Financing
Activities:
Capital lease from sale-leaseback
of building and property 5,863,874
-
<PAGE>
Notes to Financial Statements
Basis of Presentation
<PAGE>
The interim financial statements of The Vermont Teddy Bear
Co.,
Inc. (the "Company") included herein have been prepared,
without audit,
pursuant to the rules and regulations of the Securities and
Exchange
Commission ("SEC") and, in the opinion of management,
reflect all
adjustments necessary to present fairly the financial
condition and
results of operations for such interim periods. Certain
information and
footnote disclosures normally included in the financial
statements
prepared in accordance with generally accepted accounting
principles
have been condensed or omitted pursuant to such rules and
regulations.
It is suggested that these financial statements be read in
conjunction
with the audited financial statements and notes thereto for
the fiscal
year ended June 30, 1997, included in the Company's filing
with the SEC
on Form 10-KSB. The Company's sales are seasonal in nature
and,
therefore, the results for these interim periods are not
necessarily
indicative of the results for the respective years.
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
and disclosure of contingent assets and liabilities at the
date of the
financial statements and the reported amounts of revenues
and expenses
during the reporting period. Actual results could differ
from those
estimates.
Net Earnings Per Share
In February 1997, the Financial Accounting Standards Board
issued
FASB No. 128, "Earnings per Share." These financial
statements have
<PAGE>
been prepared and presented based on the new standard.
Prior period
amounts have been restated to conform to current year
presentation. Per
common share amounts are calculated based on the weighted
average number
of common shares and common share equivalents outstanding
during periods
of net income, after deducting applicable preferred stock
dividends.
Per share amounts are calculated based only on the weighted
number of
shares outstanding during periods of net loss, after
deducting
applicable preferred stock dividends.
Income Taxes
The Company accounts for income taxes in accordance with the
Statement of Financial Accounting Standards No. 109,
"Accounting for
income taxes," which requires the use of the liability
method. This
standard determines deferred income taxes based on the
estimated future
tax effects of any differences between the financial
statement and the
basis of tax assets and liabilities, given the provisions of
the enacted
tax laws. Based upon the Company's recent losses, a
valuation allowance
has been provided to fully reserve its deferred tax assets.
If the
Company is able to achieve sufficient profitability to
realize all or a
portion of its deferred assets, the valuation allowance will
be reduced
through a credit to income in future periods.
Inventories
Inventories are stated at the lower of cost or market using
the
first-in, first-out method. Inventories consisted of the
following at
December 31, 1997:
Raw materials $ 488,586
Work in process 126,259
Finished goods 2,798,196
--------------
$ 3,413,041
<PAGE>
==============
Debt and Borrowings
The Company is operating without a working capital line
of credit
facility, effective July 18, 1997. As such, the Company's
ability to
fund its operations over the short-term is dependent upon
its success in
achieving its business plan for fiscal 1998 or obtaining
additional
financing. If the Company is unsuccessful in achieving its
business plan
or obtaining additional financing, its short-term liquidity
may be
adversely impacted, which could require a curtailment of
certain business
activities that, in turn, could have a material adverse
effect on the
Company's business.
On December 31, 1997, the Company borrowed $200,000
from Green
Mountain Capital L.P. in the form of a five-year term note.
The note
bears interest at 12 percent per annum, is repayable in
monthly
installments over the five-year term, and is secured by a
security
interest in the Company's real and personal property. In
conjunction
with the issuance of the note, Green Mountain Capital
received warrants
to purchase 80,000 shares of the Company's Common Stock, at
an exercise
price of $1.00 per share, subject to certain anti-dilution
provisions.
(Green Mountain Capital's outstanding warrants to purchase
20,000 shares
at $3.375 were also repriced to a $1.00 per share exercise
price.) The
right to exercise these warrants begins immediately, and
expires the
earlier of five years after the full repayment of all
outstanding notes
or seven years from the date of the note.
On July 18, 1997, the Company completed a sale-leaseback
transaction involving its factory headquarters and a portion
of its
property located in Shelburne, Vermont. This financing
replaced the
<PAGE>
Company's mortgage and line of credit agreement with the
Vermont National
Bank. The Company received approximately $5.9 million in
cash, of which
approximately $3.3 million was used to pay off the existing
mortgage with
the Vermont National Bank. The balance, approximately $2.6
million, was
used for general working capital purposes, to pay down a
$600,000 balance
on the Company's line of credit (which was retired as the
result of the
termination of the original mortgage loan), and transaction
costs of
$591,000 associated with the sale-leaseback. The lease
obligation,
secured by the business assets of the Company, is payable on
a
twenty-year amortization schedule through July 2017. The
transaction was
accounted for under the financing method in accordance with
Statement of
Financial Accounting Standard No. 98, "Accounting for
Leases."
As of June 30, 1997, the Company had a $1,000,000 revolving
line of
credit from a bank, which was terminated on July 18, 1997,
pursuant to
the Company's sale-leaseback transaction.
On December 26, 1995, Green Mountain Capital L.P.
entered into an
agreement with the Company to lend up to $500,000 in the
form of five-
year term notes. As of December 31, 1997, the entire
$500,000 had been
borrowed, and $340,000 was outstanding as of that date. The
notes bear
interest at 12 percent per annum and are repayable in
monthly
installments through December 2000. The notes are secured
by a
subordinated security interest in the Company's personal
property. (In
conjunction with the issuance of the notes, Green Mountain
Capital
received warrants to purchase 20,000 shares of Common Stock
at an
exercise price of $3.375 per share; however, these warrants
were later
repriced pursuant to the aforementioned December 31, 1997
transaction
with Green Mountain Capital.)
<PAGE>
Related Party Transaction
On October 10, 1997, subsequent to his resignation as
President of
the Company, the Company entered into a consulting agreement
with R.
Patrick Burns, which began on November 1, 1997 and will
continue through
October 31, 1999. In consideration of the consulting
services to be
provided, the Company agreed to pay fees of $75,000 per
year, payable
monthly, as well as the forgiveness of amounts due the
Company totaling
$117,000. Additionally, stock options granted to Mr. Burns
which would
have vested as of August 1, 1998 had Mr. Burns remained
continuously
employed by the Company, became vested as of November 1,
1997. Options
scheduled to have vested after August 1, 1998 will not vest.
As of
December 31, 1997, the Company accrued and expensed the
entire amount due
to Mr. Burns under the agreement.
Management's Discussion and Analysis
The following discussion and analysis provides information
that
the Company's management believes is relevant to an
assessment and
understanding of the Company's results of operations and
financial
condition. The discussion should be read in conjunction
with the
financial statements and footnotes which appear elsewhere in
this
report, as well as the 10-KSB filing for the fiscal year
ending June 30,
1997. This report contains forward-looking statements
within the
meaning of the Private Securities Litigation Reform Act of
1995, Section
27A of the Securities Act of 1993 and Section 21E of the
Securities
Exchange Act of 1934. The words "believe," "expect,"
"anticipate,"
"intend," "estimate," and other expressions which are
predictions of or
<PAGE>
indicate future events and trends and which do not relate to
historical
matters identify forward-looking statements. Such
statements involve
risks and uncertainties that could cause actual results to
differ
materially from those set forth in such forward-looking
statements. The
Company undertakes no obligation to publicly update or
revise any
forward-looking statement, whether as a result of new
information,
future events or otherwise.
Results of Operations
Comparison of the three-month periods ended December 31,
1997 and 1996.
Net revenues for the Company for the three-month period
ended
December 31, 1997 totaled $4,100,000, an 8.6 percent
decrease from net
revenues of $4,485,000 for the three-month period ended
December 31,
1996. By business segment, Bear-Gram revenues, which
include internet
revenues, rose $268,000, attributable primarily to increased
sales from
the Company's www.vtbear.com website. Retail revenues
increased
$64,000, with the new Freeport, Maine location providing an
additional
source of revenue. Licensing revenues rose $6,000, while
wholesale
revenues decreased $73,000. Direct mail revenues decreased
$650,000,
due to a smaller 1997 Fall/Holiday catalog which had fewer
circulated
pages than the 1996 Fall/Holiday catalog.
Gross margin decreased to $2,342,000 for the quarter ended
December 31, 1997, from $2,595,000 for the quarter ended
December 31,
1996. As a percentage of net revenues, gross margin
decreased to 57.1
percent from 57.9 percent, for the three months ended
December 31, 1997,
and 1996, respectively.
Selling expenses decreased by $44,000 to $2,316,000 for the
three-
<PAGE>
month period December 31, 1997, from $2,360,000 for the
three-month
period ended December 31, 1996. Cost savings from a reduced
1997
Fall/Holiday catalog, which had fewer circulated pages than
the 1996
Fall/Holiday catalog, more than offset additional operating
costs
related to the Company's stores in New York City and
Freeport, Maine,
which were not in full operation during the comparable
fiscal quarter.
The Company also recorded a one-time charge of $215,000 for
the three
months ended December 31, 1997, related to the closure of
its New York
City retail store operation. The charge includes the write-
down of
leasehold improvements at that location, plus a reserve for
a brokerage
fee related to securing a replacement tenant for the entire
2,600 square
feet under lease. As a percentage of net revenues, selling
expenses
were 56.5 percent and 52.6 percent for the three months
ended December
31, 1997, and 1996, respectively.
General and administrative expenses were $925,000 for the
quarter
ended December 31, 1997, compared to $716,000 for the
quarter ended
December 31, 1996. On December 31, 1997, the Company
accrued and
expensed the entire amount due to R. Patrick Burns, former
Chief
Executive Officer of the Company, under his consulting
agreement. The
increase also reflected higher legal and accounting costs,
and rent
expense on vacant space at the Company's Freeport, Maine
retail
location. As a percentage of net revenues, general and
administrative
expenses were 22.6 percent and 16.0 percent for the three
months ended
December 31, 1997, and 1996, respectively.
Interest expense increased to $163,000 for the quarter ended
December 31, 1997, from $117,000 for the quarter ended
December 31,
1996. Quarterly interest expenses are anticipated to be
higher in
<PAGE>
fiscal 1998 than in fiscal 1997, due to the effects of the
sale-
leaseback of the Company's headquarters in Shelburne,
Vermont, which was
completed on July 18, 1997.
Due to its continuing loss position, the Company recorded no
tax
benefit for its operating loss for the quarter ended
December 31, 1997,
compared to a tax benefit of $232,000 for the quarter ended
December 31,
1996.
As a result of the foregoing factors, the net loss to common
stockholders totaled $1,059,000, or twenty cents per common
share, for
the quarter ended December 31, 1997, compared to a net loss
to common
stockholders of $367,000, or seven cents per common share
for the
quarter ended December 31, 1996.
Comparison of the six-month periods ended December 31, 1997
and 1996.
Net revenues for the Company for the six-month period ended
December 31, 1997 totaled $7,042,000, a 5.0 percent decrease
from net
revenues of $7,409,000 for the six-month period ended
December 31, 1996.
By business segment, retail revenues increased $196,000,
with store
locations in New York City and Freeport, Maine providing
additional
sources of revenue. Licensing revenues rose $14,000. Bear-
Gram
revenues, which include internet revenues, decreased
$18,000, while
wholesale revenues decreased $44,000. Direct mail revenues
decreased
$715,000, due primarily to a smaller 1997 Fall/Holiday
catalog which had
fewer circulated pages than the 1996 Fall/Holiday catalog.
Gross margin decreased to $4,069,000 for the six months
ended
December 31, 1997, from $4,344,000 for the six months ended
December 31,
1996. As a percentage of net revenues, gross margin
decreased to 57.8
percent from 58.6 percent, for the six months ended December
31, 1997,
<PAGE>
and 1996, respectively.
Selling expenses increased by $106,000 to $3,673,000 for the
six-
month period December 31, 1997, from $3,567,000 for the six-
month period
ended December 31, 1996. Additional operating costs related
to the
Company's stores in New York City and Freeport, Maine, which
were not in
full operation during the comparable fiscal period, and a
one-time
charge of $215,000 related to the closure of its New York
City retail
store operation, more than offset cost savings from a
reduced
Fall/Holiday catalog which had fewer circulated pages than
the 1996
Fall/Holiday catalog. As a percentage of net revenues,
selling expenses
were 52.2 percent and 48.1 percent for the six months ended
December 31,
1997, and 1996, respectively.
General and administrative expenses rose $163,000 to
$1,527,000
for the six months ended December 31, 1997, compared to
$1,364,000 for
the six months ended December 31, 1996. On December 31,
1997, the
Company accrued and expensed the entire amount due to R.
Patrick Burns,
former Chief Executive Officer of the Company, under his
consulting
agreement. Higher legal fees and rent expense on space at
the Company's
Freeport, Maine retail location more than offset reduced
wages and a
reduction in the Company's sales tax accrual. As a
percentage of net
revenues, general and administrative expenses were 21.7
percent and 18.4
percent for the six months ended December 31, 1997, and
1996,
respectively.
Interest expense increased to $323,000 for the six months
ended
December 31, 1997, from $227,000 for the six months ended
December 31,
1996. Interest expense is anticipated to be higher in
fiscal 1998 than
in fiscal 1997, due to the effects of the sale-leaseback of
the
<PAGE>
Company's headquarters in Shelburne, Vermont, which was
completed on
July 18, 1997.
Due to its continuing loss position, the Company recorded no
tax
benefit for its operating loss for the six-month period
ended December
31, 1997, compared to a tax benefit of $319,000 for the six-
month period
ended December 31, 1996.
As a result of the foregoing factors, the net loss to common
stockholders totaled $1,459,000, or twenty-eight cents per
common share,
for the six months ended December 31, 1997, compared to a
net loss to
common stockholders of $514,000, or ten cents per common
share, for the
six months ended December 31, 1996.
Liquidity and Capital Resources
The Company is operating without a working capital line of
credit
facility, effective July 18, 1997. As such, the Company's
ability to
fund its operations over the short-term is dependent upon
its success in
achieving its business plan for fiscal 1998 or obtaining
additional
financing. If the Company is unsuccessful in achieving its
business plan
or obtaining additional financing, its short-term liquidity
may be
adversely impacted, which could require a curtailment of
certain business
activities that, in turn, could have a material adverse
effect on the
Company's business.
As of December 31, 1997, the Company's cash position
increased to
$1,052,000, from $442,000 at June 30, 1997. Restricted cash
balances at
these dates were $360,000 and $365,000, respectively. The
largest
component of restricted cash at December 31, 1997 was a
$300,000
certificate of deposit pledged to URSA (VT) QRS-30, Inc. in
connection
with the sale-leaseback transaction. The largest component
of
<PAGE>
restricted cash at June 30, 1997 was a $300,000 certificate
of deposit
with the Vermont National Bank. Proceeds from the sale-
leaseback
transaction and borrowings of short-term debt more than
offset the
repayment of the Company's mortgage loan with the Vermont
National Bank
and a decrease in accounts payable.
Inventories increased to $3,413,000 at December 31, 1997,
from
$3,302,000 at June 30, 1997. The increase is primarily the
result of
preparations for the upcoming Valentine's Day selling
season. Accounts
payable totaled $2,323,000 at December 31, 1997, compared to
$2,563,000
at June 30, 1997.
On December 31, 1997, the Company borrowed $200,000 from
Green
Mountain Capital L.P. in the form of a five-year term note.
The note
bears interest at 12 percent per annum, is repayable in
monthly
installments over the five-year term, and is secured by a
security
interest in the Company's real and personal property. In
conjunction
with the issuance of the note, Green Mountain Capital
received warrants
to purchase 80,000 shares of the Company's Common Stock, at
an exercise
price of $1.00 per share, subject to certain anti-dilution
provisions.
(Green Mountain Capital's outstanding warrants to purchase
20,000 shares
at $3.375 were also repriced to a $1.00 per share exercise
price.) The
right to exercise these warrants begins immediately, and
expires the
earlier of five years after the full repayment of all
outstanding notes
or seven years from the date of the note.
On July 18, 1997, the Company completed a sale-leaseback
transaction, involving its factory headquarters and a
portion of its
property located in Shelburne, Vermont. This financing
replaced the
Company's mortgage and line of credit agreement with the
Vermont National
<PAGE>
Bank. The Company received approximately $5.9 million in
cash, of which
approximately $3.3 million was used to pay off the existing
mortgage with
the Vermont National Bank. The balance, approximately $2.6
million, was
used for general working capital purposes, to pay down a
$600,000 balance
on the Company's line of credit (which was retired as the
result of the
termination of the original mortgage loan), and transaction
costs of
$591,000 associated with the sale-leaseback. The lease
obligation,
secured by the business assets of the Company, is payable on
a
twenty-year amortization schedule through July 2017. The
transaction was
accounted for under the financing method in accordance with
Statement of
Financial Accounting Standard No. 98, "Accounting for
Leases."
As of June 30, 1997, the Company had a $1,000,000 revolving
line of
credit from a bank, which was terminated on July 18, 1997,
pursuant to
the Company's sale-leaseback transaction.
On July 12, 1996, the Company privately placed $550,000
of Series B
convertible Preferred Stock. The 204,912 Series B preferred
shares, held
of record by twelve shareholders, are not entitled to any
dividends or
voting rights, but each share was originally convertible
into one share
of the Company's Common Stock at any time on or after July
12, 1997.
Accompanying the issuance of the Preferred Stock were
warrants to
purchase 204,912 shares of the Company's Common at a price
of $2.434 per
share, exercisable between July 12, 1997 and July 12, 1999,
subject to
certain anti-dilution provisions. In addition, finder's
warrants for
10,245 common shares were issued with the same terms and
conditions. As
the result of subsequent issuances of warrants, anti-
dilution provisions
of the Series B Preferred Stock agreement were activated,
and the 204,912
<PAGE>
shares of Series B Preferred Stock are now convertible into
482,441
shares of Common Stock. Common shares issued as the result
of the
conversion of the Series B Preferred Stock and/or the
exercise of the
warrant shall be considered "restricted securities" and
shall be subject
to certain registration rights. On liquidation,
dissolution, or winding
up of the Company, holders of Series B Preferred Stock are
entitled to be
paid on a pari passu basis with any holders of Series A
Preferred Stock.
On December 26, 1995, Green Mountain Capital L.P. entered
into an
agreement with the Company to lend up to $500,000 in the
form of five-
year term notes. As of December 31, 1997, the entire
$500,000 had been
borrowed, and $340,000 was outstanding as of that date. The
notes bear
interest at 12 percent per annum and are repayable in
monthly
installments through December 2000. The notes are secured
by a
subordinated security interest in the Company's personal
property. (In
conjunction with the issuance of the notes, Green Mountain
Capital
received warrants to purchase 20,000 shares of Common Stock
at an
exercise price of $3.375 per share; however, these warrants
were later
repriced pursuant to the aforementioned December 31, 1997
transaction
with Green Mountain Capital.)
Item 4. Submission of Matters to a Vote of Security Holders
On November 23, 1997, the Company held its 1997 Annual
Meeting of
Shareholders, at which two matters were discussed and voted
upon. The
issues and the voting results were as follows:
1. Election of seven individuals to the Company's Board of
Directors for
the ensuing year.
For Withheld
Jason Bacon 4,080,372 17,169
R. Patrick Burns 4,090,449 7,542
<PAGE>
David W. Garrett 4,079,972 18,019
Fred Marks 4,086,232 11,759
Joan H. Martin 4,080,472 17,159
Spencer C. Putnam 4,080,382 17,609
Elisabeth B. Robert 4,077,973 20,018
2. Ratification of the selection of Arthur Andersen L.L.P.
as the
Company's independent public accountants for the 1997 fiscal
year.
For: 4,093,148 Against: 3,786 Abstentions: 1,057.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
3.3 Restated Certificate of Incorporation of the Company
(filed with
the Securities and Exchange Commission as exhibit 3.3
to the
Company's 1996 Annual Report on Form 10-KSB (File No.
33-69898) and
incorporated herein by reference).
3.4 Amended and Restated By-Laws of the Company (filed with
the
Securities and Exchange Commission as exhibit 3.4 to
the Company's
10-QSB for the quarter ended December 31, 1996 and
incorporated
herein by reference).
4.1 Representative's Warrant issued to Barington Capital
Group, L.P.
upon the consummation of the initial public offering
of the
Company's Common Stock in November 1993 (filed with
the Securities
and Exchange Commission as exhibit 4.1 to the
Company's 1993
Annual Report on Form 10-KSB (File No. 33-69898) and
incorporated
herein by reference).
4.2 Form of Common Stock Certificate (filed with the
Securities and
Exchange Commission as exhibit 4.2 to the Company's
Registration
Statement on Form SB-2 (File No. 33-69898) and
incorporated
herein by reference).
<PAGE>
4.3 Form of Warrant, issued in connection with the private
placement of
204,912 shares of the Company's Series B Convertible
Preferred
Stock (filed with the Securities and Exchange
Commission as exhibit
4.3 to the Company's 1996 Annual Report on Form 10-KSB
(File No.
33-69898) and incorporated herein by reference).
4.4 Form of Subscription Agreement issued in connection
with the
private placement of 204,912 shares of the Company's
Series B
Convertible Preferred Stock (filed with the
Securities and Exchange
Commission as exhibit 4.4 to the Company's 1996 Annual
Report on
Form 10-KSB (File No. 33-69898) and incorporated
herein by
reference).
4.5 Waiver of Joan H. Martin, dated April 12, 1996, issued
in
connection with waiver of accrued dividends on Series
A Preferred
Stock (filed with the Securities and Exchange
Commission as exhibit
4.5 to the Company's 1996 Annual Report on Form 10-KSB
(File No.
33-69898) and incorporated herein by reference).
4.6 Warrant to purchase 43,826.087 shares of the Company's
Common
Stock, dated April 12, 1996, issued in connection with
Joan H.
Martin's waiver of accrued dividends on Series A
Preferred Stock
(filed with the Securities and Exchange Commission as
exhibit 4.6
to the Company's 1996 Annual Report on Form 10-KSB
(File No.
33-69898) and incorporated herein by reference).
4.7 Stock Purchase Warrant Agreement, dated July 10, 1997,
between the
Company and URSA (VT) QRS-30, Inc., in conjunction
with the sale-
leaseback of the Company's headquarters in Shelburne,
Vermont
(filed with the Securities and Exchange Commission as
exhibit 4.6
to the Company's 1997 Annual Report on Form 10-KSB
(File No. 33-
<PAGE>
69898) and incorporated herein by reference).
4.8 Stock Purchase Warrant Agreement, dated December 31,
1997, in
connection with the $200,000 Term Loan of Green
Mountain Capital
(filed herein).
10.2 Stock warrants issued to Edmund H. Shea, Jr. IRA, Allan
Lyons and
William Maines in connection with the bridge financing
prior to the
initial public offering of the Company's Common Stock
in November
1993 (a form of which was filed with the Securities
and Exchange
Commission as exhibit 10.2 to the Company's
Registration Statement
on Form SB-2 (File No. 33-69898) and incorporated
herein by
reference).
10.10 Incentive Stock Option Plan adopted by the Company
on August 16,
1993, with form of Incentive Stock Option Agreement
(filed with the
Securities and Exchange Commission as exhibit 10.10 to
the
Company's Registration Statement on Form SB-2 (File
No. 33-69898)
and incorporated herein by reference).
10.11 Securities Purchase Agreement, dated June 10, 1987
between the
Company and VTB Investment Group and Joan Hixon Martin
(filed with
the Securities and Exchange Commission as exhibit
10.11 to the
Company's Registration Statement on Form SB-2 (File
No. 33-69898)
and incorporated herein by reference).
10.12 Agreement, dated as of June 19, 1995, between the
Company and John
N. Sortino, providing the terms of Mr. Sortino's
separation
agreement with the Company (filed with the Securities
and Exchange
<PAGE>
Commission as exhibit 10.12 to the Company's 10-KSB
for the
transition period ended June 30, 1995 and incorporated
herein by
reference).
10.14 Employment Agreement, dated November 1, 1993,
between the Company
and Spencer C. Putnam (filed with the Securities and
Exchange
Commission as exhibit 10.14 to the Company's
Registration Statement
on Form SB-2 (File No. 33-69898) and incorporated
herein by
reference).
10.24 Amended 1993 Incentive Stock Option Plan of the
Company, amended as
of November 28, 1995 (filed with the Securities and
Exchange
Commission as exhibit 10.24 to the Company's 10-QSB
for the quarter
ended March 31, 1995 and incorporated herein by
reference).
10.25 Loan Agreement, dated December 26, 1995, between
Green Mountain
Capital, L.P. and the Company in connection with a
$500,000 Term
Loan (filed with the Securities and Exchange
Commission as exhibit
10.25 to the Company's 10-QSB for the quarter ended
December 31,
1995 and incorporated herein by reference).
10.26 Convertible Note, dated December 26, 1995, in the
principal amount
of $200,000, issued in connection with the $500,000
Term Loan of
Green Mountain Capital (filed with the Securities
and Exchange
Commission as exhibit 10.26 to the Company's 10-QSB
for the quarter
ended December 31, 1995 and incorporated herein by
reference).
10.27 Stock Purchase Warrant Agreement, dated December
26, 1995, in
connection with the $500,000 Term Loan of Green
Mountain Capital
(filed with the Securities and Exchange Commission as
exhibit 10.27
to the Company's 10-QSB for the quarter ended December
31, 1995 and
<PAGE>
incorporated herein by reference).
10.28 Employment and Loan Agreements, dated June 30,
1996, between the
Company and R. Patrick Burns (filed with the Securities
and
Exchange Commission as exhibit 10.28 to the Company's
1996 Annual
Report on Form 10-KSB (File No. 33-69898) and
incorporated herein
by reference).
10.29 Employment Agreement, dated July 1, 1996, between
the Company and
Elisabeth B. Robert (filed with the Securities and
Exchange
Commission as exhibit 10.29 to the Company's 1996
Annual Report on
Form 10-KSB (File No. 33-69898) and incorporated
herein by
reference).
10.30 Amended 1993 Incentive Stock Option Plan of the
Company, amended
as of November 22, 1996 (filed with the Securities
and Exchange
Commission as exhibit 10.30 to the Company's 10-QSB
for the quarter
ended December 31, 1996 and incorporated herein by
reference).
10.31 Non-Employee Directors Stock Option Plan adopted
by the Company on
November 22, 1996 (filed with the Securities and
Exchange
Commission as exhibit 10.31 to the Company's 10-QSB
for the quarter
ended December 31, 1996 and incorporated herein by
reference).
10.32 Employment Agreement, dated as of July 1, 1996,
between the Company
and Spencer C. Putnam (filed with the Securities and
Exchange
Commission as exhibit 10.32 to the Company's 10-QSB
for the quarter
ended December 31, 1996 and incorporated herein by
reference).
10.33 Convertible Note, dated November 19, 1996, in the
principal amount
of $300,000, issued in connection with the $500,000
Term Loan of
<PAGE>
Green Mountain Capital (filed with the Securities
and Exchange
Commission as exhibit 10.33 to the Company's 10-QSB
for the quarter
ended December 31, 1996 and incorporated herein by
reference).
10.34 Lease Agreement, dated October 24, 1996, in
connection with the
Company's lease of 2,600 square feet at 538 Madison
Avenue in New
York, New York (filed with the Securities and Exchange
Commission
as exhibit 10.29 to the Company's 1997 Annual Report
on Form 10-KSB
(File No. 33-69898) and incorporated herein by
reference).
10.35 Consulting Agreement, dated December 31, 1996,
between the Company
and Venture Management Group, Inc., regarding the
provision of
consulting services to the Company (filed with the
Securities and
Exchange Commission as exhibit 10.29 to the Company's
1997 Annual
Report on Form 10-KSB (File No. 33-69898) and
incorporated herein
by reference).
10.36 Lease Agreement, dated January 17, 1997, in
connection with the
Company's lease of 6,000 square feet at 55 Main Street
in Freeport,
Maine (filed with the Securities and Exchange
Commission as exhibit
10.29 to the Company's 1997 Annual Report on Form 10-
KSB (File No.
33-69898) and incorporated herein by reference).
10.37 Lease Agreement, dated July 10, 1997, between the
Company and URSA
VT QRS-30, Inc., regarding the sale-leaseback of the
Company's
headquarters in Shelburne, Vermont (filed with the
Securities and
Exchange Commission as exhibit 10.29 to the Company's
1997 Annual
Report on Form 10-KSB (File No. 33-69898) and
incorporated herein
by reference).
10.38 Binding commitment letter, dated October 10, 1997,
from Green
<PAGE>
Mountain Capital LP, in connection with a $200,000
term loan (filed
with the Securities and Exchange Commission as exhibit
10.29 to the
Company's 1997 Annual Report on Form 10-KSB (File No.
33-69898) and
incorporated herein by reference).
10.39 Agreement, dated as of October 10, 1997, between
the Company and R.
Patrick Burns, providing the terms of Mr. Burns'
separation and
consulting agreement with the Company (filed with the
Securities
and Exchange Commission as exhibit 10.39 to the
Company's 10-QSB
for the quarter ended September 30, 1997 and
incorporated herein by
reference).
10.40 Employment Agreement, dated December 3, 1997,
between the Company
and Elisabeth B. Robert (filed herein).
10.41 Loan Agreement, dated December 31, 1997, between
Green Mountain
Capital, L.P. and the Company in connection with a
$200,000 Term
Loan (filed herein).
10.42 Convertible Note, dated December 31, 1997, in the
principal amount
of $200,000, issued in connection with the $200,000
Term Loan of
Green Mountain Capital (filed herein).
Reports on Form 8-K
There were no reports filed on Form 8-K during the three-
month
period ended December 31, 1997.
Signatures
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by
the
undersigned, thereunto duly authorized.
<PAGE>
The Vermont Teddy Bear Co., Inc.
Date: February 12, 1997 /s/ Elisabeth B. Robert
---------------------------
Elisabeth B. Robert,
Chief Executive Officer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE DECEMBER 31, 1997 BALANCE SHEET
AND THE THREE MONTH STATEMENT OF OPERATIONS ENDED
DECEMBER 31, 1997 FOR THE VERMONT TEDDY BEAR CO., INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 1,051,704
<SECURITIES> 0
<RECEIVABLES> 42,359
<ALLOWANCES> 0
<INVENTORY> 3,413,042
<CURRENT-ASSETS> 5,251,860
<PP&E> 12,117,447
<DEPRECIATION> 2,863,431
<TOTAL-ASSETS> 15,442,252
<CURRENT-LIABILITIES> 3,814,949
<BONDS> 6,725,455
0
910,245
<COMMON> 259,288
<OTHER-SE> 3,876,466
<TOTAL-LIABILITY-AND-EQUITY> 15,422,252
<SALES> 7,041,865
<TOTAL-REVENUES> 7,041,865
<CGS> 2,972,564
<TOTAL-COSTS> 2,975,564
<OTHER-EXPENSES> 5,184,041
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 307,898
<INCOME-PRETAX> (1,422,638)
<INCOME-TAX> 0
<PAGE>
<INCOME-CONTINUING> (1,458,638)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,458,638)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
