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, 2000.
[ ] 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: 6,757,976 shares of
Common Stock, $.05 par value per share, as of September 30, 2000.
Transitional Small Business Disclosure Format (check one):
Yes ; No X .
The Vermont Teddy Bear Co., Inc.
Index to Form 10-QSB
September 30, 2000
Page No.
--------
Part I - Financial Information
Financial Statements
Balance Sheet as of September 30, 2000 3
Statements of Operations for the Three
Months ended September 30, 2000 4
Statements of Cash Flows for the Three Months
ended September 30, 2000 5
Notes to Financial Statements 6
Management's Discussion and Analysis 11
Part II - Other Information
Item 4. Submission of Matters to a Vote of Stockholders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 21
<TABLE>
THE VERMONT TEDDY BEAR CO., INC.
Consolidated Balance Sheets
September 30, 2000
(Unaudited)
<S> <C>
2000
ASSETS ------
Cash, cash equivalents(includes restricted $ 5,637,321
cash of $569,000)
Accounts receivable, trade 137,496
Inventories 4,825,528
Prepaid expenses and other current assets 799,993
Deferred income taxes 165,363
-----------
Total Current Assets 11,565,701
Property and equipment, net 8,225,427
Deposits and other assets 1,190,780
Note receivable 20,000
-----------
Total Assets $21,001,908
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of:
Long-term debt $ -
Capital lease obligations 133,880
Accounts payable 2,016,038
Accrued expenses 1,012,682
Income taxes payable 56,095
------------
Total Current Liabilities 3,218,695
Long-term debt, net of current portion -
Capital lease obligations, net of current portion 5,376,424
Deferred income taxes 95,363
------------
Total Liabilities $ 8,690,482
Series C Convertible Redeemable Preferred Stock
Authorized 110 shares; 66.9 shares issued and outstanding,
$669,000 liquidation value. 500,994
Stockholders' Equity:
Preferred stock, $.05 par value:
Authorized 1,000,000 shares Series A; issued and
outstanding, 90 shares. 1,206,000
Common stock, $.05 par value:
Authorized 20,000,000 shares: issued 6,780,996 shares,
outstanding 6,757,976 shares. 339,050
Additional paid-in capital 11,846,695
Treasury stock at cost: 23,020 shares (117,500)
Accumulated deficit (1,463,813)
------------
Total Stockholders' Equity $11,810,432
Total Liabilities and Stockholders' Equity $21,001,908
===========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
THE VERMONT TEDDY BEAR CO., INC.
Consolidated Statements of Operations
For the Three Months Ended September 30, 2000 and 1999
(Unaudited)
<S> <C> <C>
2000 1999
------- -------
Net Revenues $4,933,476 $4,884,627
Cost of Goods Sold 1,822,585 1,928,954
---------- ----------
Gross Profit 3,110,891 2,955,673
Selling, General and Administrative Expenses:
Selling Expenses 2,013,706 1,797,741
General and Administrative Expenses 1,012,962 722,437
---------- ----------
3,026,668 2,520,178
---------- ----------
Operating Income 84,223 435,495
Interest Income 75,986 38,485
Interest Expense (140,342) (146,210)
Other Income 103,080 13,470
---------- ----------
Income Before Income Taxes 122,947 341,240
Income Tax Provision (43,031) -
---------- ----------
Net Income 79,916 341,240
Series A Preferred Stock Dividends (18,000) (18,000)
Series C Preferred Stock Dividends (9,000) (9,000)
Accretion of Original Issue Discount in
connection with Series C preferred stock
warrants (13,623) (13,623)
---------- ----------
Net Income-Common Stockholders 39,293 300,617
========== ==========
Basic Net Income Per Common Share $0.01 $0.05
========== ==========
Diluted Net Income Per Common Share $0.00 $0.03
========== ==========
Weighted Average Number of Common
Shares Outstanding 6,757,952 6,134,811
========== ==========
Weighted Average Number of Diluted
Common Shares Outstanding 8,470,948 8,732,369
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
THE VERMONT TEDDY BEAR CO., INC.
Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 2000 and 1999
(Unaudited)
<S> <C> <C>
2000 1999
Cash flows from operating activities
Net Income $ 79,916 $ 341,240
Adjustments to reconcile net income to net cash
provided by(used for) operating activities:
Depreciation and amortization 198,260 223,678
Loss on disposal of fixed assets 17,451 -
Changes in assets and liabilities:
Accounts receivable, trade (46,595) 254,648
Inventories (1,205,692) (319,708)
Prepaid and other current assets (199,573) (674,042)
Deposits and other assets (290,190) (299,276)
Accounts payable (1,165,883) (590,217)
Accrued expenses and other liabilities (180,119) 5,980
Income Taxes (47,261) (35,000)
---------- ----------
Net cash provided by operating activities (2,839,686) (1,092,697)
Cash flows from investing activities:
Purchase of property and equipment (362,841) (43,110)
Proceeds from sale of fixed assets 127,541 -
Note Receivable 7,500 7,500
---------- ----------
Net cash used for investing activities (227,800) (35,610)
Cash flows from financing activities:
Payments of short-term debt - -
Payments of long-term debt - (41,792)
Principal payments on capital lease obligations (32,935) (59,940)
Issuance of common stock, exercise of stock options 345 36,143
Issuance of common stock, Series B warrant exercise - 30,656
---------- ----------
Net cash provided by(used for) financing activities (32,590) (34,933)
---------- ----------
Net decrease in cash and cash equivalents
for the year (3,100,076) (1,163,240)
Cash and cash equivalents, beginning of year 8,737,397 5,342,483
---------- ----------
Cash and cash equivalents, end of year $5,637,321 $4,179,243
========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest 140,342 145,685
Cash paid for taxes 90,292 35,000
Supplemental Disclosures of Non-cash Investing and Financing Activities:
Series C preferred stock dividends 9,000 9,000
Accretion of original issue discount in connection
with Series C preferred stock 13,623 13,623
Conversion of preferred stock to common stock - 1,397
The accompanying notes are an integral part of these consolidated 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, 2000, 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.
Basis of Consolidation
The consolidated financial statements include the accounts of The
Vermont Teddy Bear Co., Inc. and it's wholly owned subsidiary. All
material inter-company balances and transactions have been eliminated in
consolidation.
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 diluted
common shares outstanding:
Three Months Ended
09/30/00 09/30/99
Weighted average number
of shares used in basic
EPS calculation 6,757,952 6,134,811
Add: Common Shares
Issuable Upon Exercise of:
Stock Options 1,296,946 2,034,157
Warrants 738,109 838,109
Convertible Pref Stock 637,089 602,806
--------- ---------
Total Common
Shares Issuable 9,430,096 9,609,883
Less: Shares repurchased
under treasury
Stock method 959,148 877,514
--------- ---------
Weighted average number
of shares used in diluted
EPS calculation 8,470,948 8,732,369
========= =========
Diluted weighted average shares outstanding for the three months
ended September 30, 2000 and 1999 exclude 119,500 and 12,000 potential
common shares because the price of the options was greater than the
average market price of the common stock for those periods respectively.
New Accounting Pronouncements
The Financial Accounting Standards Board issued SFAS No. 137,
Accounting For Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of SFAS No. 133, in July 1999. SFAS No. 133 is
now effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000; earlier adoption is allowed. The statement
requires companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for
hedge accounting. The Company currently expects that, due to its
limited use of derivative instruments, the adoption of SFAS No. 133 will
not have a material effect on the Company's results of operations or
financial position.
The Securities and Exchange Commission released Staff Accounting
Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, on
December 3, 1999. This SAB provides additional guidance on the
accounting for revenue recognition, including both broad conceptual
discussions as well as certain industry-specific guidance. The guidance
is effective for the fourth fiscal quarter of their first fiscal year
beginning after December 15, 1999, retroactive to the beginning of their
fiscal year, and would be adopted by recording the effect of any prior
revenue transaction affected as a "cumulative effect of a change in
accounting principle" as of January 3, 2000. The Company does not expect
this new guidance to have a material effect on the Company's results of
operations or financial position.
Start-up Activities
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. The adoption of
this Statement did not 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 operations.
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 reserve a portion of 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.
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, 2000:
Raw materials $ 688,071
Work in process 161,282
Finished goods 3,976,175
-------------
$ 4,825,528
=============
Debt and Borrowings
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 Company settled in full, all outstanding notes payable with
Green Mountain Capital through a combination of a cash and stock
transaction. All 100,000 warrants were exercised in a cashless
transaction valued at $100,000 and the remainder of $159,393 of
outstanding notes payable was paid in cash.
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. The Company entered into the sale-leaseback to
pay off a maturing mortgage, pay down a line of credit, and improve its
liquidity. 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
(now the Chittenden 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 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 retail operation segment involves one retail location and 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.
The Wholesale/Corporate segment was begun during the Company's
fiscal year 1998. The Company is pro-actively developing opportunities in
the corporate affinity market and certain wholesale markets as a business
segment.
The reporting segments follow the same accounting policies used for
the Company's consolidated financial statements and described in the
summary of significant accounting policies. Management evaluates a
segment's performance based upon gross margin and gross margin
percentage.
Bear-Gram Retail Wholesale/
Service Operations Corporate
--------- ---------- ----------
THREE MONTHS
ENDED 09/30/00
Net Revenues $3,475,043 $ 1,391,758 $ 66,675
Cost of Goods Sold 1,300,663 489,403 32,519
--------- --------- ---------
Gross Margin 2,174,380 902,355 34,156
Gross Margin % 62.6% 64.8% 51.2%
THREE MONTHS
ENDED 09/30/99
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%
Revenues from individual customers, revenues between business
segments, and revenues, operating profit and identifiable assets of
foreign operations are not significant.
The Company recently incorporated a new wholly owned subsidiary
SendAMERICA, Inc. for the purposes of extending its product offerings in
the gift delivery service industry to include other American made gift
products besides teddy bears. While no revenues or margins are reported
in the three month period ended September 30, 2000 for SendAMERICA,
which is still in the development phase, the Company recognizes it as a
separate business segment and expects to report revenues and gross
margin for this segment in the future.
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,
2000. 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, 2000 and 1999.
Net revenues for the three month period ended September 30, 2000
totaled $4,933,000, a 1.0 percent increase from net revenues of
$4,885,000 for the three-month period ended September 30, 1999. By
business segment, Bear-Gram gift delivery service revenues, which include
radio, Internet, and direct mail revenues, rose $559,000. 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,
decreased $686,000 primarily due to a large corporate order delivered in
the three months ended September 30, 1999 which was not replaced by any
significant order in the three months ended September 30, 2000. Retail
revenues at the Company's Shelburne, Vermont factory retail location
increased $176,000.
Gross margin increased to $3,111,000 for the three months ended
September 30, 2000, from $2,956,000 for the three months ended September
30, 1999. As a percentage of net revenues, gross margin increased to
63.1 percent from 60.5 percent for the three-month periods ended
September 30, 2000, and 1999, respectively. The increase in gross
margin percent resulted primarily from the increased revenues and higher
margins in the retail segment and a decrease in the effect of the
corporate/wholesale segment, which traditionally has lower unit margins.
These higher margins were partially offset by a lower gross margin
percent in the Bear-Gram segment due to this segment absorbing a higher
allocation of Fulfillment costs during the three months ended September
30, 2000 compared to the three months ended September 30, 1999. The
decrease in wholesale/corporate gross margin for the three months ended
September 30, 2000 is due to a reduction in lower margin wholesale
program revenues as compared to the three months ended September 30,
1999.
Selling expenses increased to $2,014,000 for the three-month period
September 30, 2000, from $1,798,000 for the three-month period ended
September 30, 1999. This $216,000 increase was attributable to an
increase in Bear-Gram advertising costs of $147,000, which includes
radio, catalog, Internet and print costs, increases to call center and
customer service costs of $33,000, increases to design and selling costs
associated with the Company's expanded wholesale/corporate business
segment of $2,000, increases to retail operations costs of $5,000, and
website development and merchandising costs associated with the
Company's new wholly owned subsidiary SendAMERICA, Inc. of $29,000.
Selling expenses as a percentage of revenues were 40.8 percent and 36.8
percent for the three months ended September 30, 2000 and 1999,
respectively.
General and administrative expenses were $1,013,000 for the quarter
ended September 30, 2000, compared to $722,000 for the quarter ended
September 30, 1999. This $291,000 increase to general and
administrative costs was primarily due to employee bonus accruals of
$60,000, increased order processing fees from higher net revenues of
$16,000, increased information technology support costs of $75,000,
increased legal and financial advisory fees of $125,000, and
administration and information technology support costs related to
SendAMERICA, Inc. of $17,000. General and administrative expenses as a
percentage of net revenues were 20.5 percent and 14.8 percent for the
three months ended September 30, 2000 and September 30, 1999
respectively.
The company has recorded a tax provision for the quarter ended
September 30, 2000, of approximately $43,000. There was no provision
recorded for the quarter ended September 30, 1999.
As a result of the foregoing factors, net income to common
stockholders totaled $39,000 for the quarter ended September 30, 2000,
compared to a net income to common stockholders of $301,000, for the
quarter ended September 30, 1999.
Liquidity and Capital Resources
As of September 30, 2000, the Company's cash position decreased to
$5,637,000, from $8,737,000 at June 30, 2000. Restricted cash balances
at these dates were $569,000 and $366,000, respectively. The largest
component of restricted cash at September 30, 2000 and June 30, 2000 was
a $300,000 certificate of deposit required in connection with the
Company's sale-leaseback transaction on July 18, 1997. An additional
$200,000 certificate of deposit was required in the quarter ended
September 30, 2000 for collateral substitution under the Company's lease
obligation to URSA (VT) QRS-30, Inc. upon sale of property. Cash increases
provided by operating income were offset by
increases in inventories, purchases of equipment, and decreases in
accounts payable.
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 value of $272,449 was applied as a discount to the face value of the
Series C Preferred Stock on the Company's balance sheet. The Company
will accrete this discount, with charges to retained earnings over a five
year period.
The following table shows the shares and dollar amounts of changes to
the Series C Preferred Stock Account:
Shares Amount
Issuance of Series C Preferred Stock 66 $ 478,371
as of June 30, 2000
Add: Series C Preferred Stock Dividend 0.9 $ 9,000
Add: Accretion of Discount Related to
Warrant Issuance $ 13,623
----------
Balance of Series C Preferred Stock
as of September 30, 2000 66.9 $ 500,994
==========
Each of the 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. As of September 30, 2000, $69,000 of dividends were accrued.
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.
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.
Commitments & Contingencies
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 moved to dismiss the action
based on purported documentary evidence, the lease, itself. That motion
was denied by order entered April 12, 2000. The parties have
unsuccessfully attempted to resolve their disputes and after engaging in
document discovery, the Company has moved for summary judgement on its
claims and dismissing the landlord's claims. That motion has been fully
briefed and was argued on October 30, 2000. The Company has accrued
management's estimated cost of $220,000 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.
On July 15, 1998, the Company filed a lawsuit against Tyco
Industries, Inc., entitled The Vermont Teddy Bear Co., Inc. vs. Tyco
Industries, Inc., in the United States District Court for the Northern
District of New York, alleging that Tyco failed to make minimum royalty
payments totaling $300,000 as required by its contract with the Company
dated September 11, 1995. Tyco denied liability for the minimum
royalties in its answer to the Company's complaint and filed a counter
claim for unspecified relief. The Company denied any liability on the
counter claim. On June 14, 2000 a settlement was reached for $225,000.
The Company recognized a gain of $100,000 as other income in the three
months ended September 30, 2000, when the cash settlement was received.
On July 19, 2000, to consolidate remote warehouse locations, the
Company entered into a ten year lease with three five year renewal
options for a new 60,400 square foot warehouse and fulfillment center in
Shelburne, Vermont. This facility is on property that is contiguous to
the property on which the Company's factory headquarters are located.
Annual lease payments are $393,000. The lease begins on September 1,
2000 and will replace the lease for 20,000 square feet of off-site space
in Williston, Vermont and the lease for 4,000 square feet in Shelburne,
Vermont.
Item 4. Submission of Matters to a Vote of Stockholders
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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).
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, 2000.
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 14, 2000 /s/ Elisabeth B. Robert,
-----------------------
Elisabeth B. Robert,
Chief Executive Officer and
Chief Financial Officer
