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 September 30, 1999.
[ ] 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.)
6655 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
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: 6,321,629 shares of
Common Stock, $.05 par value per share, as of September 30, 1999.
Transitional Small Business Disclosure Format (check one):
Yes ; No X .
The Vermont Teddy Bear Co., Inc.
Index to Form 10-QSB
September 30, 1999
Page No.
Part I - Financial Information
Financial Statements
Balance Sheet as of September 30, 1999 3
Statements of Operations for the Three
Months ended September 30, 1999 4
Statements of Cash Flows for the Three
Months ended September 30, 1999 5
Notes to Financial Statements 6
Management's Discussion and Analysis 10
Part II - Other Information
Item 4. Submission of Matters to a Vote of Stockholders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 21
<TABLE>
THE VERMONT TEDDY BEAR CO., INC.
Balance Sheet
September 30, 1999
(Unaudited)
<S> <C>
1999
ASSETS
Cash, cash equivalents(includes restricted $4,179,243
cash of $364,000 and $363,000 respectively)
Accounts receivable, trade 83,637
Inventories 2,355,782
Prepaid expenses and other current assets 1,143,970
Deferred income taxes 150,405
Total Current Assets 7,913,037
Property and equipment, net 7,990,098
Deposits and other assets 1,289,163
Note receivable 50,000
Total Assets $ 17,242,298
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of:
Long-term debt $ 159,957
Capital lease obligations 192,346
Accounts payable 2,012,892
Accrued expenses 816,473
Income taxes payable -
Total Current Liabilities 3,181,668
Long-term debt, net of current portion 128,197
Capital lease obligations, net of current portion 5,495,896
Deferred income taxes 150,405
Total Liabilities $ 8,956,166
Advances from Series B Preferred stockholders $ -
Series C Redeemable Preferred Stock 410,502
Stockholders' Equity:
Preferred stock, $.05 par value:
Authorized 1,000,000 shares Series A; issued
And outstanding, 90 shares at Sept 30, 1999
and June 30, 1999. 1,134,000
Authorized 375,000 shares Series B; 204,912
shares issued, No shares outstanding at
Sept 30, 1999 and 27,942 shares
outstanding at June 30, 1999. -
Common stock, $.05 par value:
Authorized 20,000,000 shares: issued 6,344,649
shares, outstanding 6,321,629 shares and issued
5,719,638 shares, outstanding 5,696,618 shares at
Sept 30, 1999 and June 30, 1999 respectively. 317,233
Additional paid-in capital 11,422,069
Treasury stock at cost: 23,020 shares at Sept 30, 1999
and June 30, 1999. (117,500)
Accumulated deficit (4,880,172)
Total Stockholders' Equity $ 7,875,630
Total Liabilities and Stockholders' Equity $ 17,242,298
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
THE VERMONT TEDDY BEAR CO., INC.
Statements of Operations
For the Three Months Ended September 30, 1999 and 1998
(Unaudited)
<S> <C> <C>
1999 1998
Net Revenues $4,884,627 $3,046,720
Cost of Goods Sold 1,928,954 1,259,474
Gross Profit 2,955,673 1,787,246
Selling, General and Administrative Expenses:
Selling Expenses 1,797,741 1,097,946
General and Administrative Expenses 722,437 653,493
2,520,178 1,751,439
Operating Income 435,495 35,807
Interest Income 38,485 10,525
Interest Expense (146,210) (157,853)
Other Income 13,470 605
Income(Loss) Before Income Taxes 341,240 (110,916)
Income Tax Provision - -
Net Income(Loss) 341,240 (110,916)
Preferred Stock Dividends (27,000) (18,000)
Accretion of Warrants Issued in connection with
Series C preferred stock (13,623) -
Net Income (Loss)-Common Stockholders 300,617 (128,916)
Basic Net Income(Loss) Per Common Share $0.05 ($0.02)
Diluted Net Income(Loss) Per Common Share $0.03 ($0.02)
Weighted Average Number of Common Shares Outstanding 6,134,811 5,183,733
Weighted Average Number of Diluted
Common Shares Outstanding 8,732,369 5,183,733
The accompanying notes are an integral part of these financial statements
</TABLE>
THE VERMONT TEDDY BEAR CO., INC.
Statements of Cash Flows
For the Three Months Ended September 30, 1999 and 1998
(Unaudited)
[S] [C] [C]
1999 1998
Cash flows from operating activities
Net Income (loss) $341,240 $(110,916)
Adjustments to reconcile net income (loss) to net cash
provided by(used for) operating activities:
Depreciation and amortization 223,678 247,339
Loss on disposal of fixed assets - -
Changes in assets and liabilities:
Accounts receivable,trade 254,648 (34,830)
Inventories (319,708) 16,078
Prepaid and other current assets (674,042) (150,831)
Deposits and other assets (299,276) (24,933)
Note Receivable 7,500 7,500
Accounts payable (590,217) (428,472)
Accrued expenses and other liabilities 5,980 (65,790)
Income Taxes (35,000) -
Net cash used for operating activities (1,085,197) (544,855)
Cash flows from investing activities:
Purchase of property and equipment (43,110) (47,024)
Proceeds from sale of fixed assets - -
Net cash used for investing activities (43,110) (47,024)
Cash flows from financing activities:
Payments of short-term debt - (45,603)
Payments of long-term debt (41,792) (47,632)
Principal payments on capital lease obligations (59,940) (54,398)
Issuance of common stock, exercise of
stock options 36,143 -
Issuance of common stock, Series B
warrant exercise 30,656 -
Net cash used for financing activities (34,933) (147,633)
Net decrease in cash and cash equivalents (1,163,240) (739,512)
Cash and cash equivalents, beginning of period 5,342,483 1,527,052
Cash and cash equivalents, end of period $ 4,179,243 $ 787,540
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest 145,685 157,328
Cash paid for taxes 35,000 -
Supplemental Disclosures of Non-cash Investing and Financing Activities:
Conversion of preferred stock to common stock 1,397 -
Series B Warrant exercise for common stock 524,164 -
The accompanying notes are an integral part of these financial statements.
[/TABLE]
Notes to Financial Statements
Basis of Presentation
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, 1999, 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.
Earnings Per Share
In accordance with SFAS No. 128, Earnings Per Share, basic and
diluted net income (loss) per common share is calculated by dividing net
income (loss) by the weighted number of common shares outstanding for
all periods presented. SFAS No. 128 establishes standards for computing
and presenting earnings per share and applies to entities with publicly
held common stock or potential common stock. The Company has applied
the provisions of SFAS No. 128 and Staff Accounting Bulletin (SAB) No.
98 retroactively to all periods presented.
The following table reconciles the weighted average common shares
outstanding to the shares used in the computation of basic and weighted
average common shares outstanding:
Three Months Ended
9/30/99 9/30/98
Weighted average
number of shares used
in basic EPS calculation 6,134,811 5,183,733
Add: Incremental weighted
average common shares
issuable upon exercise of
stock options and warrants
outstanding 2,597,558 --
--------- ---------
Weighted average
number of shares used in
diluted EPS calculation 8,732,369 5,183,733
========= ==========
Diluted weighted average shares outstanding for the three months
ended September 30, 1999 exclude 12,000 potential common shares because
the price of the options was greater than the average market price of
the common stock for that period. Diluted weighted average shares
outstanding for the three months ended September 30, 1998 exclude
1,581,102 potential shares from stock options and convertible preferred
stock because to include such shares would have been anti-dilutive due
to the Company's net loss in that quarter.
New Accounting Pronouncements
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use, requiring
computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met.
The Company adopted SOP 98-1 beginning July 1, 1999. Adoption of this
Statement is not expected to have a material impact on the Company's
financial position or results of operations.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5, Reporting on Costs of
Start-Up Activities, requiring all costs associated with pre-opening,
pre-operating, and organization activities to be expensed as incurred.
The Company adopted SOP 98-5 beginning July 1, 1999. Adoption of this
Statement is not expected to have a material impact on the Company's
financial position or results of operations.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and
displaying comprehensive income and its components. The Company adopted
the statement in its quarter ending March 31, 1998. The Company does
not have any other items of comprehensive income. As such,
comprehensive income is equal to net income as presented in the
consolidated statements of income.
Income Taxes
The Company accounts for income taxes in accordance with the
Statement of Financial Accounting Standards (SFAS) 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. In view of the Company's previous operating results, a
valuation allowance has been provided to fully reserve its deferred tax
assets due to the uncertainty of their realization. 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 the income tax provision in future periods.
Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method. Inventories consisted of the following at
September 30, 1999:
Raw materials $ 463,318
Work in process 167,043
Finished goods 1,725,421
---------
$ 2,355,782
=========
Debt and Borrowings
The Company has been operating without a working capital line of
credit since July 18, 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
through December 31, 2002, and is secured by a security interest in the
Company's real and personal property. In conjunction with the issuance of
the notes, Green Mountain Capital received warrants to purchase 100,000
shares of Common Stock at an exercise price of $1.00 per share, subject to
certain anti-dilution provisions. On November 5, 1999, the loan together with
all other remaining indebtedness to Green Mountain Capital in the amount of
$259,000 was paid in full and the warrant was exercised.
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 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."
Segment Information
Operating segments represent components of the Company's business
that are evaluated regularly by key management in assessing performance
and resource allocation. The Company has determined that its reportable
segments consist of Bear-Gram Gift Delivery Service, Retail Operations,
and Wholesale/Corporate (including licensing).
The Bear-Gram delivery service involves sending personalized teddy
bears directly to recipients for special occasions such as birthdays,
anniversaries, weddings, and new births, as well as holidays such as
Valentine's Day, Christmas, and Mother's Day. Bear-Gram orders are placed
through the toll free number, on-line, or through the catalog.
The Company actively promotes family tours of its teddy bear factory
and store at the factory location in Shelburne, located ten miles south of
Burlington, Vermont. In an effort to make a visit to the factory more
entertaining and draw additional traffic, the Company has implemented the
Make-A-Friend-For-Life bear assembly area, where visitors can participate
in the creation of their own teddy bear.
During its fiscal year 1998, the Company began pro-actively developing
opportunities in the corporate affinity market and certain wholesale
markets as a business segment, which is the fastest growing segment of the
Company's business.
<TABLE>
<S> <C> <C> <C>
Bear-Gram Retail Wholesale/
Service Operations Corporate
QTR END 9/30/99
Net Revenues $2,915,954 $1,216,108 $752,565
Cost of Goods Sold 993,348 443,426 492,180
Gross Margin 1,922,606 772,682 260,385
Gross Margin % 65.9% 63.5% 34.6%
QTR END 9/30/98
Net Revenues $1,840,217 $1,134,966 $ 71,537
Cost of Goods Sold 730,591 475,399 53,484
Gross Margin 1,109,626 659,567 18,053
Gross Margin % 60.3% 58.1% 25.2%
Revenues from individual customers, revenues between business segments,
and revenues, operating profit and identifiable assets of foreign
operations are not significant.
</TABLE>
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,
1999. 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
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 September 30, 1999 and 1998.
Net revenues for the three month period ended September 30, 1999 totaled
$4,885,000, a 60.3 percent increase from net revenues of $3,047,000 for
the three-month period ended September 30, 1998. By business segment,
Bear-Gram gift delivery service revenues, which include radio, internet,
and direct mail revenues, rose $1,076,000. The increase is attributable to
the expansion of the Company's direct response radio advertising campaign
into new markets around the country and increased sales from the Company's
www.vermontteddybear.com web-site. Net revenues from the
Wholesale/Corporate segment, which includes licensing revenues, increased
$681,000 as the Company added several new customers in the wholesale and
corporate affinity markets. Retail revenues increased $81,000. Increases
in revenue at the Shelburne, Vermont factory retail location more than
offset revenues lost due to the closing of the company's satellite retail
store locations in Freeport, Maine and North Conway, New Hampshire which
were in operation during a portion of the quarter ended September 30, 1998.
Gross margin increased to $2,956,000 for the quarter ended
September 30, 1999, from $1,787,000 for the quarter ended September 30,
1998. As a percentage of net revenues, gross margin increased to 60.5
percent from 58.7 percent for the three-month periods ended September
30, 1999, and 1998. The introduction of new products with higher unit
margins, lower costs associated with imported materials and teddy bear
outfits, and a reduction in goods purchased for resale are the primary
factors that contributed to the increase in gross margin. Lower product
distribution costs associated with the curtailment of off-site retail
operations also contributed to improved gross margin.
Selling expenses increased to $1,798,000 for the three-month
period September 30, 1999, from $1,098,000 for the three-month period
ended September 30, 1998. This $700,000 increase was primarily due to
increased advertising costs, new market research costs, and
increased customer service and call center costs associated with larger
call volume. Selling expenses as a percentage of revenues were 36.8
percent and 36.0 percent for the three months ended September 30, 1999
and 1998, respectively.
General and administrative expenses were $722,000 for the quarter
ended September 30, 1999, compared to $653,000 for the quarter ended
September 30, 1998. Due to increased sales, general and administrative
expenses decreased as a percentage of net revenue to 14.8 percent for the three
months ended September 30, 1999, from 21.4 percent for the three months ended
September 30, 1998.
As a result of the foregoing factors, net income to common
stockholders totaled $301,000, for the quarter ended September 30, 1999,
compared to a net loss to common stockholders of $129,000, for the
quarter ended September 30, 1998.
Liquidity and Capital Resources
The Company has been operating without a working capital line of
credit facility since July 18, 1997.
As of September 30, 1999, the Company's cash position decreased to
$4,179,000, from $5,342,000 at June 30, 1999. Restricted cash balances
at these dates were $364,000 and $363,000, respectively. The largest
component of restricted cash at September 30, 1999 and June 30, 1999 was
a $300,000 certificate of deposit required in connection with the
Company's sale-leaseback transaction on July 18, 1997. Cash decreased
primarily as the result of a decrease in accounts payable and payments
on debts and capital leases and an increase in prepaid expenses and
other current assets. Prepaid expenses increased to $1,144,000 at
September 30, 1999 from $470,000 at June 30, 1999 as a result of deposits on
increased quantities of materials and teddy bear outfits and accessories from
overseas for Valentine's Day, for which delivery has been accelerated to dates
prior to December 31, 1999 to reduce exposure to year 2000 risks.
On November 3, 1998, the Company closed on a private placement of
$600,000 of its Series C Convertible Redeemable Preferred Stock ("Series C
Preferred Stock") to an investor group lead by The Shepherd Group LLC.
Accompanying the Series C Preferred Stock are warrants to purchase 495,868
shares of the Company's Common Stock at an exercise price of $1.05 per
share, which will expire seven years from the date of issuance. In
connection with the issuance of the Series C Preferred Stock, a warrant to
purchase 42,500 shares of the Company's Common Stock was issued at an
exercise price of $1.05 to the Company's lessor in the sale-leaseback
transaction. Because of the mandatory redemption provision, the Series C
Preferred Stock net of the value of the warrants has been classified as
long term debt in the accompanying balance sheet. The Company has valued
the warrants using the Black Scholes valuation model. The Company will
accrete, with charges to interest expense over a five year period, an
aggregate of approximately $270,000.
Each of the sixty shares of Series C Preferred Stock has a
liquidation value of $10,000 per share, and is convertible into 9,523
shares of the Company's Common Stock. The Series C Preferred Stock
requires redemption upon the tenth anniversary of its issuance, with both
the Company and the Series C Preferred stockholders having call and put
rights, respectively, beginning on the fifth anniversary of issuance. The
Series C Preferred stock carries voting rights on an as-converted basis,
and, as a class, has the right to elect two members to the Company's Board
of Directors. Both the Series C Preferred Stock and the accompanying
warrants carry certain anti-dilution provisions. The Series C Preferred
Stock has a cumulative preferred dividend of six percent per annum, payable
quarterly. The dividends are required to be paid in additional shares of
Series C Preferred Stock for the first two and one-half years after
issuance, and thereafter may be paid in cash or additional shares of Series
C Preferred Stock, at the Company's option.
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
through December 31, 2002, and is secured by a security interest in the
Company's real and personal property. In conjunction with the issuance of
the notes, Green Mountain Capital received warrants to purchase 100,000
shares of Common Stock at an exercise price of $1.00 per share, subject to
certain anti-dilution provisions. On November 5, 1999, the loan together with
all other remaining indebtedness to Green Mountain Capital in the amount of
$259,000 was paid in full and the warrant was exercised.
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
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
$679,000 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 Company has been operating without a working capital line of
credit facility since July 18, 1997. The Company believes that its
existing cash and cash equivalent balances, together with funds generated
from operations, will be sufficient to finance the Company's operations for
at least the next twelve months.
On July 12, 1996, the Company privately placed $550,000 of Series B
convertible Preferred Stock. The 204,912 shares, $.05 par value, of
Series B Convertible Preferred Stock were issued to twelve individuals.
Series B stockholders 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 14, 1997, subject to certain
anti-dilution rights. As the result of subsequent financing transactions,
the anti-dilution provisions of the Series B agreement were activated, and
on February 3, 1999, 176,970 shares of Series B Convertible Preferred Stock
was converted into 474,989 shares of the Company's Common Stock. On July
19, 1999, the remaining 27,942 shares of Series B Preferred Convertible
Stock were converted into 74,996 shares of the Company's Common Stock. On
or about July 3, 1999, 215,157 warrants associated with the Series B
Preferred Stock were exercised and converted into 519,265 shares of the
Company's Common Stock. The Company received $523,692 in consideration for
these shares. As of June 30, 1999, $493,508 was classified as advances from
Series B Stockholders on the Company's balance sheet. In the three months
ended September 30, 1999, the total consideration for these shares is
classified as equity in Common Stock.
Contingency
On October 24, 1996, the company entered into a ten-year lease for
2,600 square feet on Madison Avenue in New York City. On December 7, 1997,
the Company's 538 Madison Avenue location was closed due to structural
problems at neighboring 540 Madison Avenue. On December 16, the Company
announced that it was permanently closing that retail location. The City
of New York deemed the 538 Madison Avenue building uninhabitable from
December 8, 1997 to April 9, 1998, and the Company has not made any rent
payments on the lease since December, 1997. On December 24, 1998, the
Company received a notice from its landlord of 538 Madison Avenue alleging
that it was in default under the lease for failure to resume occupancy, and
demand for back rent for the period July 8, 1998 to December 31, 1998 in
the amount of $144,355. Further on January 4, 1999 the Company received a
demand to resume rent payments beginning January 1999. The Company
disputes the landlord's position and believes it is not obligated to resume
occupancy or pay rent under the lease. As a result, on May 25, 1999, the
Company commenced action in the Supreme Court of the State of New York,
County of New York against 538 Madison Realty Company. The action seeks
breach of contract damages and a declaration that the contract at issue,
the former lease between the parties, has been terminated. The landlord
has not answered or asserted counter-claims, but moved to dismiss the
action based on purported documentary evidence, the lease, itself. The
motion has been fully briefed and was submitted to the Court on September
14, 1999. The motion was subsequently argued on October 25, 1999. No
decision has been issued. The parties have agreed to attempt to mediate
their disputes. The Company has accrued management's estimated cost to
settle this contingency, but no assurance can be given that this dispute
can be settled for this amount. In the event that the Company is not
successful in its suit against 538 Madison Realty Company, the remaining
amount owed under the lease over its remaining term at face value is
$2,825,000.
Year 2000 Disclosure
The Company has been addressing computer software modifications or
replacements to enable transactions to process properly in the year 2000.
Key financial, information processing and operating systems, including
accounting, point of sale, phone, manufacturing, shipping and facilities
systems were updated to year 2000 compliance in the fiscal year ended June
30, 1999.
Virtually all of these modifications or replacements were made in
order for the Company to handle increased order volume in addition to
enabling transactions to process properly in the year 2000. Therefore, the
cost of changes directly related to addressing year 2000 compliance, were
not significant to the financial statements.
Although the Company is working with suppliers and customers
regarding this issue, no assurance can be given with respect to any
potential adverse effects on the Company of any failure by other parties to
achieve year 2000 compliance. As a contingency, the Company has scheduled
all raw materials and outfits needed from offshore vendors for manufacture
of its Valentine's Day product to be delivered prior to December 31, 1999.
Item 4. Submission of Matters to a Vote of Stockholders
No matter was submitted to a vote of security holders during the
first quarter of the fiscal year covered by this report.
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).
3.5 Restated Certificate of Incorporation of the Company (filed with the
Securities and Exchange Commission as exhibit 3.5 to the Company's 10-QSB
for the quarter ended September 30, 1998 and incorporated herein by
reference).
3.6 Amended and Restated By-Laws of the Company (filed with the
Securities and Exchange Commission as exhibit 3.6 to the Company's 10-QSB
for the quarter ended September 30, 1998 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).
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 4.7 to the Company's 1998
Annual Report 10-KSB (File No. 33-69898 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
with the Securities and Exchange Commission as exhibit 4.8 to the Company's
10-QSB for the quarter ended December 31, 1997, and incorporated herein by
reference.)
4.9 Securities Purchase Agreement, dated September 25, 1998, between the
Company and The Shepherd Group LLC, in connection with the Company's
private placement of sixty shares of Series C Convertible Redeemable
Preferred Stock (filed with the Securities and Exchange Commission as
exhibit 10.47 to the Company's 1998 Annual Report 10-KSB (File No. 33-
69898) and incorporated herein by reference).
4.10 Amendment, dated November 3, 1998, between the Company and The
Shepherd Group LLC, to the Securities Purchase Agreement dated September
25, 1998 (filed with the Securities and Exchange Commission as exhibit 4.10
to the Company's 10-QSB for the quarter ended September 30, 1998 and
incorporated herein by reference).
4.11 Form of Warrant, issued in connection with the private placement of
the Company's Series C Convertible Redeemable Preferred Stock (filed with
the Securities and Exchange Commission as exhibit 4.11 to the Company's 10-
QSB for the quarter ended September 30, 1998 and incorporated herein by
reference).
4.12 Warrant to purchase 42,500 shares of the Company's Common
Stock,issued to URSA (VT) QRS 12-30, Inc., dated November 3, 1998, in
connection with the issuance of the Company's Series C Convertible
Redeemable Preferred Stock (filed with the Securities and Exchange
Commission as exhibit 4.12 to the Company's 10-QSB for the quarter
ended December 31, 1998 and incorporated herein by reference).
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 Commission as exhibit
10.12 to the Company's 10-KSB for the transition period ended June 30, 1995
and incorporated herein by reference).
10.13 Employment Agreement and Loan Arrangement, dated July 31, 1995,
between the Company and R. Patrick Burns providing the terms of Mr. Burns'
employment with the Company as Chief Executive Officer (filed with the
Securities and Exchange Commission as exhibit 10.13 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).
10.17 Commitment Letter issued by Vermont National Bank, Burlington,
Vermont, dated September 18, 1995, in connection with a Commercial Mortgage
Loan and a Line of Credit Loan (filed with the Securities and Exchange
Commission as exhibit 10.17 to the Company's 10-KSB for the transition
period ended June 30, 1995 and incorporated herein by reference).
10.18 Loan Agreement, dated September 26, 1995, between the Company and
Vermont National Bank regarding $3,500,000 Term Loan and $1,000,000 Line of
Credit Loan (filed with the Securities and Exchange Commission as exhibit
10.18 to the Company's 10-KSB for the transition period ended June 30, 1995
and incorporated herein by reference).
10.19 Commercial Term Note, dated September 26, 1995, issued in connection
with the $3,500,000 Term Loan of Vermont National Bank (filed with the
Securities and Exchange Commission as exhibit 10.19 to the Company's 10-KSB
for the transition period ended June 30, 1995 and incorporated herein by
reference).
10.20 Commercial Time Note, dated September 26, 1995, issued in connection
with the $1,000,000 Line of Credit Loan of Vermont National Bank (filed
with the Securities and Exchange Commission as exhibit 10.20 to the
Company's 10-KSB for the transition period ended June 30, 1995 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 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 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 10.34 to
the Company's 1997 Annual Report 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 10.35 to the Company's 1997 Annual Report 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 10.36 to the
Company's 1997 Annual Report 10-KSB (File No. 33-69898) and incorporated
herein by reference).
10.37 Lease Agreement, dated July 10, 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 10.37 to the Company's 1997 Annual Report 10-KSB (File No. 33-
69898) and incorporated herein by reference).
10.38 Binding commitment letter, dated October 10, 1997, from Green
Mountain Capital LP, in connection with a $200,000 term loan (filed with
the Securities and Exchange Commission as exhibit 10.38 to the Company's
1997 Annual Report 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 with the Securities and Exchange Commission
as exhibit 10.40 to the Company's 10-QSB for the quarter ended December 31,
1997 and incorporated herein by reference).
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 with the Securities and Exchange Commission as exhibit 10.41 to the
Company's 10-QSB for the quarter ended December 31, 1997 and incorporated
herein by reference).
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 with the Securities and Exchange Commission as
exhibit 10.42 to the Company's 10-QSB for the quarter ended December 31,
1997 and incorporated herein by reference).
10.43 Employment Agreement, dated March 13, 1998, between the Company and
Spencer C. Putnam (filed with the Securities and Exchange Commission as
exhibit 10.43 to the Company's 10-QSB for the quarter ended March 31, 1998
and incorporated herein by reference).
10.44 Employment Agreement, dated April 30, 1998, between the Company and
Robert D. Delsandro, Jr. (filed with the Securities and Exchange Commission
as exhibit 10.44 to the Company's 10-QSB for the quarter ended March 31,
1998 and incorporated herein by reference).
10.45 Non-Binding Proposal and Management Agreement, dated May 21, 1998,
between the Company and The Shepherd Group LLC, in connection with the
Company's private placement of sixty shares of Series C Convertible
Redeemable Preferred Stock (filed with the Securities and Exchange
Commission as Exhibits A and B to the Company's definitive proxy statement
for its Special Meeting of Stockholders held September 11, 1998 and
incorporated herein by reference).
10.46 Amendment to Employment Agreement, dated June 1, 1998, between the
Company and Elisabeth B. Robert (filed with the Securities and Exchange
Commission as exhibit 10.46 to the Company's 1998 Annual Report 10-KSB
(File No. 33-69898) and incorporated herein by reference).
10.47 Securities Purchase Agreement, dated September 25, 1998, between the
Company and The Shepherd Group LLC, in connection with the Company's
private placement of sixty shares of Series C Convertible Redeemable
Preferred Stock (filed with the Securities and Exchange Commission as
exhibit 10.47 to the Company's 10-QSB for the quarter ended September 30,
1998 and incorporated herein by reference).
10.48 Amendment to Employment Agreement, dated June 11, 1999, between the
Company and Elisabeth B. Robert (filed as exhibit 10.48 to the Company's
1999 Annual Report 10-KSB and incorporated herein by reference).
23.1 Consent of Arthur Andersen, LLP, dated September 27, 1999 (filed
herein)
24 Power of Attorney (filed with the Securities and Exchange Commission
as exhibit 24 to the Company's Registration Statement on Form SB-2 (File
No. 33-69898) and incorporated herein by reference).
Reports on Form 8-K
There were no reports filed on Form 8-K during the three-month
period ended September 30, 1999.
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.
The Vermont Teddy Bear Co., Inc.
Date: November 15, 1999 /s/ Elisabeth B. Robert
Elisabeth B. Robert,
Chief Executive Officer and
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE SEPTEMBER 30, 1999 BALANCE SHEET
AND THE THREE MONTH STATEMENT OF OPERATIONS ENDED
SEPTEMBER 30, 1999 FOR THE VERMONT TEDDY BEAR CO., INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEPT-30-1999
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<RECEIVABLES> 83,637
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<INVENTORY> 2,355,782
<CURRENT-ASSETS> 7,913,037
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1,134,000
<COMMON> 317,233
<OTHER-SE> 6,424,397
<TOTAL-LIABILITY-AND-EQUITY> 17,242,298
<SALES> 4,884,627
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<CGS> 1,928,954
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