<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 JUNE 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
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:
<TABLE>
<CAPTION>
Par Value Date Number of Shares
--------- --------------- ----------------
<S> <C> <C> <C>
Common Stock $ .01 August 13, 1997 3,779,380
</TABLE>
<PAGE>
GEERLINGS & WADE, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at December 31, 1996 and
June 30, 1997 (Unaudited)............................ 2
Statements of Operations for the Quarters Ended June
29, 1996 and June 30, 1997 (Unaudited)............... 3
Statements of Cash Flows for the Six Months Ended
June 29, 1996 and June 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 4. Submissions of Matters to a Vote of Security
Stockholders......................................... 9
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, June 30,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 774,514 $ 2,707,601
Accounts receivable 307,409 395,562
Inventory 8,359,765 7,413,634
Prepaid mailing costs 813,208 595,287
Prepaid expenses 312,158 441,955
Refundable income taxes 14,241 8,024
Deferred income taxes 500,000 372,762
------------ ------------
Total Current Assets 11,081,295 11,934,825
------------ ------------
PROPERTY AND EQUIPMENT, AT COST 2,531,660 2,725,088
Less--Accumulated Depreciation 910,112 1,101,160
------------ ------------
1,621,548 1,623,928
------------ ------------
OTHER ASSETS 249,425 129,689
------------ ------------
$ 12,952,268 $ 13,688,442
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 939,019 $ -
Accounts payable 1,114,413 2,615,245
Deferred revenue 542,305 405,590
Accrued expenses 440,148 377,841
------------ ------------
Total Current Liabilities 3,035,885 3,398,676
------------ ------------
DEFERRED REVENUE, LESS CURRENT PORTION 390,868 506,060
------------ ------------
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) 23,172
------------ ------------
Total Stockholders' Equity 9,525,515 9,783,706
------------ ------------
$ 12,952,268 $ 13,688,442
============ ============
</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 Six Months Ended
June 29, June 30, June 29, June 30,
1996 1997 1996 1997
------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 7,189,882 $ 8,402,370 $ 14,859,989 $ 15,522,169
Cost of Sales 3,857,028 4,580,651 8,067,096 8,342,446
------------- -------------- ------------ ------------
Gross Profit 3,332,854 3,821,719 6,792,893 7,179,723
Selling, general and administrative expenses 3,484,825 3,396,548 7,068,213 6,773,920
------------- -------------- ------------ ------------
Income (loss) from operations (151,971) 425,171 (275,320) 405,803
Interest income --- 19,485 --- 19,486
Interest expense (57,844) --- (132,650) (5,602)
------------- -------------- ------------ ------------
Income (loss) before income taxes (209,815) 444,656 (407,970) 419,687
Provision (benefit) for income taxes (84,000) 178,720 (163,000) 168,000
------------- -------------- ------------ ------------
Net income (loss) $ (125,815) $ 265,936 $ (244,970) $ 251,687
============= ============== ============ ============
Net income (loss) per share $ (0.03) $ 0.07 $ (0.06) $ 0.07
============= ============== ============ ============
Weighted average common shares and equivalents
outstanding 3,775,555 3,779,391 3,775,555 3,793,686
=============== =============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GEERLINGS & WADE, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 29, June 30,
1996 1997
--------------- ---------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (244,970) $ 251,687
Adjustments to reconcile net income (loss) to net cash provided by
operating activities --
Depreciation and amortization 279,814 272,662
Deferred income taxes (163,000) 128,150
Loss from disposition of fixed asset --- 20,770
Changes in current assets and liabilities --
Accounts receivable (277,709) (88,153)
Inventory 1,224,477 946,130
Prepaid mailing costs (37,505) 217,921
Prepaid expenses 6,049 (140,415)
Refundable income taxes 594,041 6,217
Accounts payable (776,445) 1,500,833
Deferred revenue (146,500) (21,524)
Accrued expenses 9,522 (62,307)
------------ -------------
Net cash provided by operating activities 467,774 3,031,971
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (380,509) (267,731)
Proceeds from the sale of property and equipment --- 3,550
Change in other assets (20,194) 97,812
------------ -------------
Net cash used in investing activities (400,703) (166,369)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit 4,980,431 ---
Repayments on line of credit (5,457,500) (939,019)
Proceeds from stock purchase plan 4,046 6,504
------------ -------------
Net cash used in financing activities (473,023) (932,515)
------------ -------------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (405,952) 1,933,087
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 809,828 774,514
------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 403,876 $ 2,707,601
============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period -
Interest $ 139,432 $ 5,691
============ =============
</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 June 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 June 30, 1997 was 3,779,000 and for the quarter ended June 29,
1996 was 3,776,000. The weighted average number of shares used in the
computation for the six months ended June 30, 1997 was 3,794,000 and for the six
months ended June 29, 1996 was 3,776,000.
3. Certain Relationships and Related Transactions
----------------------------------------------
The Company has a credit facility (the "Credit Facility") with The First
National Bank of Boston ("Bank of Boston"). One of the Company's outside
directors is employed as a senior executive with Bank of Boston. The Company
believes that the Credit Facility provides terms no more or less favorable than
terms that may otherwise be offered by other lending institutions. This director
announced that he would not stand for re-election as a director at the May 13,
1997 Annual Meeting of Stockholders, in view of business and personal reasons.
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 JUNE 29, 1996 AND JUNE 30, 1997
Sales
Sales increased $1,212,000, or 16.9%, from $7,190,000 in the quarter
June 29, 1996 to $8,402,000 in the quarter ended June 30, 1997. The increase in
sales from the prior year in large part resulted from additional sales
generated by higher 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. The spring catalog sales were
approximately $385,000 and Bordeaux futures sales were approximately $283,000.
Sales increased 14.4% in markets in which the Company has been open since 1994,
while sales increased 30.4% in markets opened in 1995. The number of
twelve-bottle equivalent cases ("cases") sold by the Company increased by
15,511, or 24.2%, from 64,002 in the quarter ended June 29, 1996 to 79,513 in
the quarter ended June 30, 1997. The average case price decreased by $14.77, or
13.1%, from $113.00 in the quarter ended June 29, 1996 to $98.23 in the quarter
ended June 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 1.16 in the quarter ended June 30,
1997 compared to 1.13 in the comparable fiscal quarter of 1996.
Gross Profit
Gross profit increased $489,000, or 14.7%, from $3,333,000 in the
quarter ended June 29, 1996 to $3,822,000 in the quarter ended June 30, 1997.
Gross profit as a percentage of sales decreased from 46.4% in the quarter ended
June 29, 1996 to 45.5% in the quarter ended June 30, 1997. Gross profit per case
decreased $6.32, or 12.2%, from $52.00 in the quarter ended June 29, 1996 to
$45.68 in the quarter ended June 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 $88,000, or
2.5%, from $3,485,000 in the quarter ended June 29, 1996 to $3,397,000 in the
quarter ended June 30, 1997, while decreasing as a percentage of sales from
48.5% in the quarter ended June 29, 1996 to 40.4% in the quarter ended June 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 in first quarter 1997 whereas in the same period of 1996 shipping and
handling was $3.95 and b) continued cost reduction efforts; this benefit 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 was eliminated in the quarter ended June 30, 1997
because the Company made no borrowings under the Company's line of credit in the
second quarter, as compared to interest expense of $58,000 in the quarter ended
June 29, 1996. The Company earned interest income of $20,000 in the quarter
ended June 30, 1997 as a result of maintaining positive cash positions during
the quarter. In the quarter ended June 29, 1996, the Company had no interest
income.
6
<PAGE>
SIX MONTH PERIODS ENDED JUNE 29, 1996 AND JUNE 30, 1997
Sales
Sales increased $662,000, or 4.5%, from $14,860,000 in the six months
ended June 29, 1996 to $15,522,000 in the six months ended June 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 increased 1.0% in markets in which the Company has
been open since 1994, while sales increased 30.0% in markets opened in 1995. The
number of cases sold by the Company increased by 15,449, or 11.7%, from 132,307
in the six months ended June 29, 1996 to 147,756 in the six months ended June
30, 1997. The average case price decreased by $9.50, or 8.7%, from $109.42 in
the six months ended June 29, 1996 to $99.92 in the six months ended June 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 1.13 in
the six months ended June 30, 1997 compared to 1.10 in the comparable fiscal
period of 1996.
Gross Profit
Gross profit increased $387,000, or 5.7%, from $6,793,000 in the six
months ended June 29, 1996 to $7,180,000 in the six months ended June 30, 1997.
Gross profit as a percentage of sales increased from 45.7% in the six months
ended June 29, 1996 to 46.3% in the six months ended June 30, 1997. Gross profit
per case decreased $2.33, or 4.7%, from $49.40 in the six months ended June 29,
1996 to $47.07 in the six months ended June 30, 1997. The increase in gross
profit percentage resulted from selling lower priced wines that bear higher
margins but was offset in the second quarter by price reductions on older
inventory to promote its sale. Average gross profit per case fell because the
average price per case decreased and this had a greater effect than the increase
of gross profit as a percentage of sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $294,000, or
4.2%, from $7,068,000 in the six months ended June 29, 1996 to $6,774,000 in the
six months ended June 30, 1997. As a percentage of sales, these expenses
decreased from 47.6% in the six months ended June 29, 1996 to 43.6% in the six
months ended June 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 quarter of 1996 shipping was $3.95 per
case and b) continued cost reduction efforts; this benefit 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 $127,000 from $133,000 in the six months
ended June 29, 1996 to $6,000 in the six months ended June 30, 1997, as a result
of a decrease in average borrowings under the Company's line of credit. The
Company earned interest income of $20,000 in the six months ended June 30, 1997
compared to none in the six months ended June 29, 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 quarter ended June
30, 1997 reflects an approximate 40% effective income tax rate anticipated for
the full year ended December 31, 1997. During the quarter ended June 30, 1997,
the Company recorded a provision for income taxes of $179,000 and $168,000 for
the six months ended June 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 June 30, 1997, the Company had cash and cash equivalents
totaling $2,708,000. In addition, the Company has a credit facility with Bank of
Boston 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 the
Bank of Boston's base rate (which approximates the prime rate) plus one-quarter
percent and is collateralized by substantially all of the assets of the Company.
As of June 30, 1997, the Company had no outstanding balance under the Line of
Credit.
During the six months ended June 30, 1997, net cash of $3,032,000 was
provided by operating activities, resulting principally from reductions of
inventory and deferred prospecting and an increase in accounts payable, which
reductions were offset by an increase in prepaid expenses.
Net cash of $166,000 was used for investing activities, representing
primarily investments in computer systems.
At December 31, 1996 and June 30, 1997, the Company had working
capital of $8,045,000 and $8,536,000, respectively. The increase in working
capital was primarily due to a decrease in accounts receivable, inventory,
deferred prospecting, accounts payable and accrued expenses.
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 June 30, 1997, the Company had no obligations with respect to
forward currency exchange contracts.
8
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
(a) The Company held its annual meeting on May 13, 1997.
(b) At the annual meeting, stockholders reelected Mr. Huib E.
Geerlings as a director. Messrs. James C. Curvey, Phillip D.
Wade and Robert Webb continued serving their terms of office
after the annual meeting.
(c) Results of annual meeting votes:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Proposal For Against Withheld Abstentions Broker Non-votes
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
To elect Huib E. Geerlings as
director 3,580,801 104,854
-------------------------------------------------------------------------------------------------------
To approve an increase of
150,000 shares for issuance
under the Company's Stock
option Plan 2,615,996 162,125 5,500 902,034
-------------------------------------------------------------------------------------------------------
To ratify the appointment of
Arthur Andersen LLP as
independent auditors of the
Company 3,666,750 12,900 6,005
-------------------------------------------------------------------------------------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------------------------------------
(a) No reports on Form 8-K were filed during the quarter ended June 30,
1997.
</TABLE>
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: August 13, 1997
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,707,601
<SECURITIES> 0
<RECEIVABLES> 395,562
<ALLOWANCES> 0
<INVENTORY> 7,413,634
<CURRENT-ASSETS> 11,934,825
<PP&E> 2,725,088
<DEPRECIATION> 1,101,160
<TOTAL-ASSETS> 13,688,442
<CURRENT-LIABILITIES> 3,398,676
<BONDS> 0
0
0
<COMMON> 37,794
<OTHER-SE> 9,745,912
<TOTAL-LIABILITY-AND-EQUITY> 13,688,442
<SALES> 8,402,370
<TOTAL-REVENUES> 8,402,370
<CGS> 4,580,651
<TOTAL-COSTS> 4,580,651
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 444,656
<INCOME-TAX> 178,720
<INCOME-CONTINUING> 265,936
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 265,936
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
