<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 MARCH 31, 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:
<TABLE>
<CAPTION>
Par Value Date Number of Shares
--------- ---- ----------------
<S> <C> <C> <C>
Common Stock $ .01 May 8, 1997 3,779,380
</TABLE>
<PAGE>
GEERLINGS & WADE, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Balance Sheets at December 31, 1996 and
March 31, 1997 (Unaudited)................................................ 3
Statements of Operations for the Quarters Ended March 30, 1996 and
March 31, (Unaudited)..................................................... 4
Statements of Cash Flows for the Three-Quarter Period Ended
March 30, 1996 and March 31, 1997 (Unaudited)............................. 5
Notes to Financial Statements............................................. 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................................. 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................... 9
SIGNATURES .......................................................................... 10
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEERLINGS & WADE, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 774,514 $ 2,649,389
Accounts receivable 307,409 87,248
Inventory 8,359,765 5,558,999
Prepaid mailing costs 813,208 763,108
Prepaid expenses 312,158 320,536
Refundable income taxes 14,241 12,356
Deferred income taxes 500,000 511,632
----------- -----------
Total Current Assets 11,081,295 9,903,268
----------- -----------
PROPERTY AND EQUIPMENT, AT COST 2,531,660 2,575,951
Less--Accumulated Depreciation 910,112 1,029,897
----------- -----------
1,621,548 1,546,054
----------- -----------
OTHER ASSETS 249,425 139,529
----------- -----------
$12,952,268 $11,588,851
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 939,019 $ -
Accounts payable 1,114,413 835,726
Deferred revenue 542,305 493,039
Accrued expenses 440,148 293,239
----------- -----------
Total Current Liabilities 3,035,885 1,622,004
----------- -----------
DEFERRED REVENUE, LESS CURRENT PORTION 390,868 449,076
----------- -----------
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 39,629
Additional paid-in capital 9,716,256 9,720,906
Retained deficit (228,515) (242,764)
----------- -----------
Total Stockholders' Equity 9,525,515 9,517,771
----------- -----------
$12,952,268 $11,588,851
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
GEERLINGS & WADE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 30, March 31,
1996 1997
----------- -----------
<S> <C> <C>
Sales $ 7,670,107 $ 7,119,799
Cost of Sales 4,210,068 3,761,795
----------- -----------
Gross Profit 3,460,039 3,358,004
Selling, general and administrative expenses 3,583,388 3,377,371
----------- ------------
Loss from operations (123,349) (19,367)
Interest expense, net (74,806) (5,602)
----------- -----------
Loss before income taxes (198,155) (24,969)
Provision/(benefit) for income taxes (79,000) (10,720)
----------- -----------
Net loss $ (119,155) $ (14,249)
=========== ===========
Net loss per share (Note 2) $ (0.03) $ ---
=========== ===========
Weighted average common shares outstanding 3,776,000 3,779,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE>
GEERLINGS & WADE, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31, March 31,
1996 1997
---------- ----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (119,155) $ (14,249)
Adjustments to reconcile net loss to net cash
provided by operating activities --
Depreciation and amortization 103,673 135,601
Deferred income taxes (79,912) (10,720)
Changes in current assets and liabilities --
Accounts receivable (10,609) 220,160
Inventory 1,233,613 2,800,766
Prepaid mailing costs (260,681) 50,100
Prepaid expenses 90,462 (14,142)
Refundable income taxes 367,012 1,885
Accounts payable (623,703) (278,687)
Deferred revenue (199,144) 8,941
Accrued expenses (148,519) (146,908)
---------- -----------
Net cash provided by operating activities 353,037 2,752,747
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (38,337) (44,291)
Decrease in other assets 6,781 98,934
---------- -----------
Net cash (used in)/provided by
investing activities (31,556) 54,643
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit (821,778) (939,019)
Proceeds from stock award plans 4,040 6,504
---------- -----------
Net cash used in financing activities (817,738) (932,515)
---------- -----------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (496,257) 1,874,875
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 809,828 774,514
---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 313,571 $ 2,649,389
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ 80,222 $ 16,938
========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<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 March
31, 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 Loss per Share Data
-----------------------
Net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the period. The weighted
average number of shares used in the computation for the period ended March 30,
1996 was 3,776,000 and for the period ended March 31, 1997 was 3,779,000.
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.
6
<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 thirteen 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 other disclosures 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 MARCH 30, 1996 AND MARCH 31, 1997
Sales
Sales decreased $550,000, or 7%, from $7,670,000 in the quarter March 30,
1996 to $7,120,000 in the quarter ended March 31, 1997. The decrease in sales
from the comparable period for the prior year resulted from a shift in the
product mix to lower-priced wines. Sales declined 27% in markets in which the
Company has been open since 1994, while sales increased 14% in markets open two
years or less. The net decline results from the lower-priced wines. The
Company intends to offer higher priced wines now that the inventory has been
reduced to a reasonable level. The number of twelve-bottle equivalent cases
("cases") sold by the Company decreased by 100, or 0.2%, from 68,300 in the
quarter ended March 30, 1996 to 68,200 in the quarter ended March 31, 1997. The
average case price decreased by $5.64, or 5.3%, from $107.52 in the quarter
ended March 30, 1996 to $101.88 in the quarter ended March 31, 1997. The
average case price decreased as a result of offering a product mix with overall
lower prices in the quarter. The average number of cases purchased per customer
order was 1.11 in the quarter ended March 31, 1997 compared to 1.07 in the
comparable fiscal quarter of 1996.
Gross Profit
Gross profit decreased $102,000, or 2.9%, from $3,460,000 in the quarter
ended March 30, 1996 to $3,358,000 in the quarter ended March 31, 1997. Gross
profit as a percentage of sales increased from 45.1% in the quarter ended March
30, 1996 to 47.2% in the quarter ended March 31, 1997. Gross profit per case
increased $0.58, or 1.2%, from $48.63 in the quarter ended March 30, 1996 to
$49.21 in the quarter ended March 31, 1997. The increase in gross margin
percentage and average gross profit resulted primarily from increased sales of
lower-priced wines that generally produced a higher gross margin percentage.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $206,000, or 5.75%,
from $3,583,000 in the quarter ended March 30, 1996 to $3,377,000 in the quarter
ended March 31, 1997, while increasing as a percentage of sales from 46.7% in
the quarter ended March 30, 1996 to 47.4% in the quarter ended March 31, 1997.
The net decrease in selling, general and administrative expenses is attributable
to lower net delivery costs due to charging $5.95 per case in first quarter of
1997, whereas in the same period of 1996 shipping and handling was free; this
benefit was partially offset by increases in fulfillment and overhead expenses
related to increased staffing to provide greater customer service and support.
Interest
Interest expense decreased $69,000 from $75,000 in the quarter ended March
30, 1996 to $6,000 in the quarter ended March 31, 1997, as a result of a
decrease in average borrowings under the Company's line of credit.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
INCOME TAXES
During the quarter ended March 31, 1997, the Company recorded a deferred
income benefit of $11,000. Deferred income taxes as of March 31, 1997 relate to
the tax benefit of the current year net operating loss and cumulative temporary
differences between book and tax earnings that will reduce the Company's future
tax obligations.
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 March 31, 1997, the Company had cash and cash equivalents totaling
$2,649,000. In addition, the Company has a credit facility with The First
National Bank of Boston ("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 March
31, 1997, the Company had no outstanding balance under the Line of Credit.
During the quarter ended March 31, 1997, net cash of $2,753,000 was
provided by operating activities, resulting principally from reductions of
accounts receivable, deferred prospecting and inventories, which reductions were
offset by decreases in accounts payable, accrued expenses and deferred revenue.
Net cash of $55,000 was used for investing activities, representing
primarily investments in computer systems.
At December 31, 1996 and March 31, 1997, the Company had working capital of
$8,045,000 and $8,281,000, 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
March 31, 1997, the Company had no obligations with respect to forward currency
exchange contracts.
8
<PAGE>
PART II. OTHER INFORMATION
Item 6.
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 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: May 8, 1997
10
<PAGE>
INDEX OF EXHIBITS FILED WITH THIS REPORT
Exhibit No. Description Page No.
- ----------- ----------- --------
27 Financial Data Schedule
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,649,389
<SECURITIES> 0
<RECEIVABLES> 87,248
<ALLOWANCES> 0
<INVENTORY> 5,558,999
<CURRENT-ASSETS> 9,903,268
<PP&E> 2,575,951
<DEPRECIATION> 1,029,897
<TOTAL-ASSETS> 11,588,851
<CURRENT-LIABILITIES> 1,622,004
<BONDS> 0
0
0
<COMMON> 39,629
<OTHER-SE> 9,720,906
<TOTAL-LIABILITY-AND-EQUITY> 11,588,851
<SALES> 7,119,799
<TOTAL-REVENUES> 7,119,799
<CGS> 3,761,795
<TOTAL-COSTS> 3,377,371
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,602
<INCOME-PRETAX> (24,969)
<INCOME-TAX> (10,720)
<INCOME-CONTINUING> (14,249)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,249)
<EPS-PRIMARY> (.00)
<EPS-DILUTED> (.00)
</TABLE>
