<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-24048
GEERLINGS & WADE, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2935863
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
960 Turnpike Street, Canton, MA 02021
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (617) 821-4152
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Par Value Date Number of Shares
--------- ---- ----------------
Common Stock $.01 November 14, 1997 3,781,343
<PAGE>
GEERLINGS & WADE, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at December 31, 1996 and
September 30, 1997 (Unaudited)................................ 2
Statements of Operations for the Quarters Ended September 28,
1996 and September 30, 1997 and for the Nine Months Ended
September 28, 1996 and September 30, 1997 (Unaudited)......... 3
Statements of Cash Flows for the Nine Months Ended September
28, 1996 and September 30, 1997 (Unaudited)................... 4
Notes to Financial Statements................................. 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................................. 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................. 9
SIGNATURES................................................................... 10
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GEERLINGS & WADE, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 774,514 $ 214,062
Accounts receivable 307,409 137,519
Inventory 8,359,765 10,878,750
Prepaid mailing costs 813,208 1,083,692
Prepaid expenses 312,158 945,251
Refundable income taxes 14,241 7,924
Deferred income taxes 500,000 382,762
------------- -------------
Total Current Assets 11,081,295 13,649,960
------------ -------------
PROPERTY AND EQUIPMENT, AT COST 2,531,660 2,693,458
Less-Accumulated Depreciation 910,112 1,158,864
------------- -------------
1,621,548 1,534,594
------------- -------------
OTHER ASSETS 249,425 118,812
$ 12,952,268 $ 15,303,366
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 939,019 $ 993,060
Accounts payable 1,114,413 2,863,480
Deferred revenue 542,305 492,303
Accrued expenses 440,148 496,285
------------- -------------
Total Current Liabilities 3,035,885 4,845,128
------------- -------------
DEFERRED REVENUE, LESS CURRENT PORTION 390,868 559,268
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value-
Authorized-1,000,000 shares
Outstanding-none
Common stock, $.01 par value-
Authorized-10,000,000 shares-
Issued and outstanding-3,777,525 and
3,779,380 shares in 1996 and 1997,
respectively 37,774 37,794
Additional paid-in capital 9,716,256 9,722,740
Retained earnings (deficit) (228,515) 138,436
------------- -------------
Total Stockholders' Equity 9,525,515 9,898,970
------------- -------------
$ 12,952,268 $ 15,303,366
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
GEERLINGS & WADE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 28, September 30, September 28, September 30,
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 7,170,704 $ 7,258,227 $ 22,030,693 $ 22,780,395
Cost of Sales 3,956,956 4,072,544 12,024,052 12,414,990
------------ ------------ ------------ ------------
Gross Profit 3,213,748 3,185,683 10,006,641 10,365,405
Selling, general and administrative expenses 3,192,017 2,990,969 10,260,230 9,764,652
------------ ------------ ------------ ------------
Income (loss) from operations 21,731 194,714 (253,589) 600,753
Interest income -- 1,332 -- 20,818
Interest expense (76,914) (3,017) (209,564) (8,620)
------------ ------------ ------------ ------------
Income (loss) before income taxes (55,183) 193,029 (463,153) 612,951
Provison (benefit) for income taxes (21,000) 78,000 (184,000) 246,000
------------ ------------ ------------ ------------
Net income (loss) $ (34,183) $ 115,029 $ (279,153) $ 366,951
============ ============ ============ ============
Net income (loss) per share $ (0.01) $ 0.03 $ (0.07) $ 0.10
============ ============ ============ ============
Weighted average common shares and
equivalents outstanding 3,776,000 3,799,379 3,776,000 3,793,603
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GEERLINGS & WADE, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 28, September 30,
1996 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (279,153) $ 366,951
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities--
Depreciation and amortization 356,144 403,252
Deferred income taxes (184,912) 118,150
Loss from disposition of fixed asset -- 2,083
Changes in current assets and liabilities--
Accounts receivable (205,853) 169,889
Inventory 1,172,698 (2,518,985)
Prepaid mailing costs 44,771 (270,484)
Prepaied expenses (60,735) (654,610)
Refundable income taxes 594,953 6,317
Accounts payable (848,173) 1,749,068
Deferred revenue (57,430) 118,398
Accrued expenses 11,783 56,137
-------------- -------------
Net cash provided by (used in) operating activities 544,093 (453,834)
-------------- -------------
CASH FLOWS FROM INVESTIING ACTIVITIES:
Purchases of property and equipment, net (597,050) (306,441)
Proceeds from the sale of property and equipment -- 41,550
Change in other assets (45,109) 97,728
-------------- -------------
Net cash used in investing activities (642,159) (167,163)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit 7,083,951 1,731,014
Repayments on line of credit (7,093,500) (1,676,973)
Proceeds from stock purchase plan 10,951 6,504
-------------- -------------
Net cash provided by (used in) financing activities 1,402 60,545
-------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (96,664) (560,452)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 809,828 774,514
-------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 713,164 $ 214,062
============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period-
Interest $ 212,951 $ 8,620
============== =============
ITEMS NOT AFFECTING CASH FLOWS:
Income tax benefit of stock options exercises $ -- $ --
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Notes to Financial Statements
1. Basis of Presentation
---------------------
The interim period information set forth in these financial statements is
unaudited and may be subject to normal year-end adjustments. In the opinion of
management, the information reflects all adjustments, which consist of normal
recurring accruals that are considered necessary to present a fair statement of
the results of operations of Geerlings & Wade, Inc. (the "Company") for the
interim periods presented. The operating results for the quarter ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the fiscal year ending December 31, 1997.
The financial statements presented herein should be read in conjunction with the
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996. Certain information in these footnote
disclosures normally included in financial statements has been condensed or
omitted in accordance with the rules and regulations of the Securities and
Exchange Commission.
2. Net Income (Loss) per Share Data
--------------------------------
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period. Common stock equivalents, which are calculated
using the treasury stock method, are included in the computation of weighted
average common shares outstanding when their effect upon earnings per share is
dilutive. The weighted average number of shares used in the computation for the
quarter ended September 30, 1997 was 3,799,379 and for the quarter ended
September 28, 1996 was 3,776,000. The weighted average number of shares used in
the computation for the nine months ended September 30, 1997 was 3,793,603 and
for the nine months ended September 28, 1996 was 3,776,000.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Geerlings & Wade, Inc. (the "Company") is a direct marketer of premium
wines and wine- and cigar-related merchandise to retail consumers. The Company
currently maintains licensed facilities in fourteen states. Federal, state and
local laws strictly govern the sale of wine in each market served by the
Company.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
The Company may occasionally make forward-looking statements and estimates
such as forecasts and projections of the Company's future performance or
statements of management's plans and objectives. These forward-looking
statements may be contained in SEC filings, press releases and oral statements,
among others, made by the Company. Actual results could differ materially from
those in such forward-looking statements. Therefore, no assurance can be given
that the results in such forward-looking statements will be achieved. Important
factors could cause the Company's actual results to differ from those contained
in such forward-looking statements, including, among other things, the factors
mentioned in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 on file with the U.S. Securities and Exchange Commission.
QUARTERS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1997
Sales
Sales increased $87,000, or 1.2%, from $7,171,000 in the quarter September
28, 1996 to $7,258,000 in the quarter ended September 30, 1997. The increase in
sales from the prior year in large part resulted from additional sales generated
by new programs such as telemarketing and e-mail advertising and by increased
membership sales but was offset by lower sales from acquisition and catalog
orders due to the delay of mailing these marketing pieces. In 1996, the fourth
acquisition mailing and the first drop of the fall catalog were mailed in
September, whereas the mailing of these marketing pieces were delayed until the
beginning of the fourth quarter of 1997. Sales decreased 1.5% in markets in
which the Company has been open since 1994, while sales increased 4.7% in
markets opened in 1995. Sales continue to increase in markets opened after 1994
because the penetration rates are lower than in older markets. The circulation
of acquisition mail as a percentage of total circulation into those markets and
response rates to the acquisition mail is higher than the comparable percentages
for older markets. The number of twelve-bottle equivalent cases ("cases") sold
by the Company increased by 6,003, or 9.4%, from 64,025 in the quarter ended
September 28, 1996 to 70,028 in the quarter ended September 30, 1997. The
average case price decreased by $8.22, or 7.5%, from $109.57 in the quarter
ended September 28, 1996 to $101.35 in the quarter ended September 30, 1997.
The average case price decreased principally as a result of offering a new
product mix with overall lower prices and due to reducing prices of older
inventory to promote the sale of this older product. The average number of
cases purchased per customer order was 1.20 in the quarter ended September 30,
1997 compared to 1.15 in the comparable fiscal quarter of 1996.
Gross Profit
Gross profit decreased $28,000, or 1.0%, from $3,214,000 in the quarter
ended September 28, 1996 to $3,186,000 in the quarter ended September 30, 1997.
Gross profit as a percentage of sales decreased from 44.8% in the quarter ended
September 28, 1996 to 43.9% in the quarter ended September 30, 1997. Gross
profit attributable to wine sales decreased $4.41 per case, or 8.9%, from $49.66
per case in the quarter ended September 28, 1996 to $45.25 per case in the
quarter ended September 30, 1997. The decrease in gross margin percentage and
average gross profit resulted primarily from sales of older inventory at reduced
pricing and sales of lower priced wines that generally produced lower gross
margin dollars per case.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $201,000, or 6.3%,
from $3,192,000 in the quarter ended September 28, 1996 to $2,991,000 in the
quarter ended September 30, 1997, while decreasing as a percentage of sales from
44.5% in the quarter ended September 28, 1996 to 41.2% in the quarter ended
September 30, 1997. The net decrease in selling, general and administrative
expenses is largely attributable to a) lower net delivery costs due to charging
$5.95 per case starting in the first quarter 1997 whereas in the same period of
1996 shipping and handling was $3.95 and b) continued cost reduction efforts and
c) lower marketing costs; this benefit was partially offset by increased salary
expenses necessary to fulfill a greater number of orders and facility expenses
related to opening the Michigan facility.
6
<PAGE>
Interest
Interest expense decreased $74,000 from $77,000 in the quarter ended
September 28, 1996 to $3,000 in the quarter ended September 30, 1997, as a
result of a decrease in average borrowings under the Company's line of credit.
The Company earned interest income of $1,000 in the quarter ended September 30,
1997 compared to none in the quarter ended September 28, 1997. This increase is
due to the Company's improved cash position.
NINE-MONTH PERIODS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1997
Sales
Sales increased $750,000, or 3.4%, from $22,031,000 in the nine months
ended September 28, 1996 to $22,780,000 in the nine months ended September 30,
1997. The increase in sales from the comparable period for the prior year
resulted primarily from increased response rates to house mailings, the
introduction of a spring catalog offering wines and wine accessories and the
recognition of sales of Bordeaux futures in the second quarter of 1997 which
were not sold in the second quarter of 1996. Sales decreased 0.4% in markets
in which the Company has been open since 1994, while sales increased 20.4% in
markets opened in 1995. The number of cases sold by the Company increased by
21,452, or 10.9%, from 196,332 in the nine months ended September 28, 1996 to
217,784 in the nine months ended September 30, 1997. The average case price
decreased by $8.51, or 7.8%, from $108.89 in the nine months ended September 28,
1996 to $100.38 in the nine months ended September 30, 1997. The average case
price decreased primarily as a result of offering a new product mix with overall
lower prices in the period and reducing prices on older inventory. The average
number of cases purchased per customer order was 1.15 in the nine months ended
September 30, 1997 compared to 1.12 in the comparable fiscal period of 1996.
Gross Profit
Gross profit increased $359,000, or 3.6%, from $10,007,000 in the nine
months ended September 28, 1996 to $10,365,000 in the nine months ended
September 30, 1997. Gross profit as a percentage of sales increased from 45.4%
in the nine months ended September 28, 1996 to 45.5% in the nine months ended
September 30, 1997. Gross profit attributable to wine sales decreased $3.52 per
case, or 7.0%, from $50.53 per case in the nine months ended September 28, 1996
to $47.01 per case in the nine months ended September 30, 1997. The increase in
gross profit percentage resulted from selling lower-priced wines that bear
higher margins but was offset in the second and third quarters by price
reductions on older inventory to promote its sale. Average gross profit per
case fell because the average price per case decreased which outweighed
the increase of gross profit as a percentage of sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $495,000, or 4.8%,
from $10,260,000 in the nine months ended September 28, 1996 to $9,765,000 in
the nine months ended September 30, 1997. As a percentage of sales, these
expenses decreased from 46.6% in the nine months ended September 28, 1996 to
42.9% in the nine months ended September 30, 1997. The net decrease in selling,
general and administrative expenses is attributable to a) lower net delivery
costs due to charging $5.95 per case for this period in 1997 whereas in the
first quarter of 1996 shipping was free and in the second and third quarters of
1996 shipping was $3.95 per case and b) continued cost reduction efforts. The
decrease in selling, general and administrative expenses was partially offset by
increased salary expense necessary to fulfill a greater number of orders and
increased marketing expenses primarily reflecting the cost to launch the spring
catalog.
Interest
Interest expense decreased $201,000 from $210,000 in the nine months ended
September 28, 1996 to $9,000 in the nine months ended September 30, 1997, as a
result of a decrease in average borrowings under the Company's line of credit.
The Company earned interest income of $21,000 in the nine months ended September
30, 1997 compared to none in the nine months ended September 28, 1997. This
increase is due to the Company's improved cash position.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
PROVISION FOR INCOME TAXES
The Company's provision for income taxes for the nine months ended
September 30, 1997 reflects an approximate 40% effective income tax rate
anticipated for the full year ended December 31, 1997. During the quarter
ended September 30, 1997, the Company recorded a provision for income taxes of
$78,000 for the quarter ended September 30, 1997and $246,000 for the nine months
ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary working capital needs include purchases of inventory
and the cost of prospect mailings and other expenses associated with promoting
sales. As of September 30, 1997, the Company had cash and cash equivalents
totaling $214,000. In addition, the Company has a credit facility with
BankBoston comprised of a revolving, discretionary, demand line of credit in the
maximum principal amount equal to the lesser of 50% of qualifying inventory or
$5.0 million (the "Line of Credit"). The Line of Credit bears interest at
BankBoston's base rate (which approximates the prime rate) plus three-quarters
of a percent and is collateralized by substantially all of the assets of the
Company. As of September 30, 1997, the Company had an outstanding balance of
$993,000 under the Line of Credit.
During the nine months ended September 30, 1997, net cash of $454,000 was
used by operating activities, resulting principally from increases of inventory,
deferred prospecting and prepaid expenses, which reductions were offset by an
increase in accounts payable and a decrease in accounts receivable.
Net cash of $167,000 was used for investing activities, representing
primarily investments in computer systems.
At December 31, 1996 and September 30, 1997, the Company had working
capital of $8,045,000 and $8,805,000, respectively. The increase in working
capital was primarily due to an increase in inventory, prepaid mailing costs,
prepaid expenses, and accounts payable and was offset by a decrease in accounts
receivable.
The Company presently believes that cash flows from operations and current
cash balances, together with the Line of Credit, will be sufficient to meet the
Company's working capital and capital expenditure requirements for the
foreseeable future.
EXCHANGE RATES
The Company engages, from time to time, in currency-hedging activities
related to firm commitments for the purchase of inventories in an effort to fix
costs and manage the impact of exchange rate fluctuations. The Company has two
foreign exchange lines of credit, which allow the Company to enter into forward
currency exchange contracts of up to $1,000,000 maturing on any one day. As of
September 30, 1997, the Company had no obligations with respect to forward
currency exchange contracts.
8
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GEERLINGS & WADE, INC.
(Registrant)
By: /s/ Jay L. Essa
----------------
Name: Jay L. Essa
Title: President and Chief
Executive Officer
By: /s/ David R. Pearce
-------------------
Name: David R. Pearce
Title: Vice President and Chief
Financial Officer
Dated: November 14, 1997
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 214,062
<SECURITIES> 0
<RECEIVABLES> 137,519
<ALLOWANCES> 0
<INVENTORY> 10,878,750
<CURRENT-ASSETS> 13,649,960
<PP&E> 2,693,458
<DEPRECIATION> 1,158,864
<TOTAL-ASSETS> 15,303,366
<CURRENT-LIABILITIES> 4,845,128
<BONDS> 0
0
0
<COMMON> 37,794
<OTHER-SE> 9,861,176
<TOTAL-LIABILITY-AND-EQUITY> 15,303,366
<SALES> 7,258,227
<TOTAL-REVENUES> 7,258,227
<CGS> 4,072,544
<TOTAL-COSTS> 4,072,544
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 193,029
<INCOME-TAX> 78,000
<INCOME-CONTINUING> 115,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,029
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
