<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, 2000
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): (781) 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 May 15, 2000 3,855,940
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GEERLINGS & WADE, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C>
Balance Sheets as of December 31, 1999 and
March 31, 2000 (Unaudited)........................................ 2
Statements of Operations for the Quarters Ended March 31, 1999 and
March 31, 2000 (Unaudited)........................................ 3
Statements of Cash Flows for the Quarters Ended March 31, 1999 and
March 31, 2000 (Unaudited)........................................ 4
Notes to Financial Statements..................................... 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................................................... 6
Item 3. Quantitative and Qualitative Disclosure about Market Risk......... 8
PART II. OTHER INFORMATION
Item 5. Other Information................................................ 9
Item 6. Exhibits and Reports on Form 8-K................................. 9
SIGNATURES........................................................................ 10
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GEERLINGS & WADE, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, 1999 March 31, 2000
-------------------------- ---------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,624,990 $ 283,824
Accounts receivable 1,395,305 1,121,128
Inventory 9,481,779 12,765,510
Prepaid mailing costs 899,400 472,211
Prepaid expenses and other current assets 1,265,916 1,413,827
Deferred income taxes, net 229,139 229,139
------------- -------------
Total Current Assets 15,896,529 16,285,639
------------- -------------
Property and equipment, at cost 2,442,285 2,236,106
Less--Accumulated depreciation 1,326,174 1,292,066
------------- -------------
1,116,111 944,040
------------- -------------
Deferred income taxes, net 352,408 352,408
------------- -------------
Other Assets 390,411 379,763
------------- -------------
$ 17,755,459 $ 17,961,850
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ --- $ ---
Accounts payable 3,354,972 5,248,545
Accrued expenses 1,316,166 1,246,754
Current portion of deferred revenue 1,171,406 1,163,284
------------- -------------
Total Current Liabilities 5,842,544 7,658,583
------------- -------------
Deferred revenue, less current portion 436,206 457,492
------------- -------------
Purchase price advance from Liquid Holdings 1,250,0000 ---
------------- -------------
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-3,849,071 and 3,855,940 shares in
1999 and 2000, respectively 38,491 38,559
Additional paid-in capital 10,075,279 10,107,108
Retained earnings (deficit) 112,939 (299,892)
------------- -------------
Total Stockholders' Equity 10,226,709 9,845,775
------------- -------------
$ 17,755,459 $ 17,961,850
============= =============
</TABLE>
2
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GEERLINGS & WADE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31, 1999 March 31, 2000
---------------------- -----------------------
<S> <C> <C>
Sales $ 8,529,923 $ 8,151,731
Cost of Sales 4,427,900 4,122,055
------------ ------------
Gross Profit 4,102,023 4,029,676
Selling, general and administrative expenses 4,603,760 5,581,295
Merger related expenses --- 48,981
------------ ------------
Loss from operations (501,737) (1,600,600)
Loss on disposal of fixed asset --- (68,886)
Purchase price advance from Liquid Holdings --- 1,250,000
Interest income 15,010 6,655
Interest expense --- ---
------------ ------------
Loss before income taxes (486,727) (412,831)
Benefit for income taxes (204,400) ---
------------ ------------
Net loss $ (282,327) $ (412,831)
============ ============
Net loss per share
Basic and Diluted $ (0.07) $ (0.11)
============ ============
Weighted average common and common equivalent shares
outstanding
Basic and Diluted 3,827,979 3,852,447
============ ============
</TABLE>
3
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GEERLINGS & WADE, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31, 1999 March 31, 2000
-------------- --------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss $ (282,327) $ (412,831)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization 113,925 145,016
Loss on disposition of fixed asset --- 68,886
Purchase price advance from Liquid Holdings --- (1,250,000)
Changes in current assets and liabilities --
Accounts receivable (253,567) 274,177
Inventory (2,107,254) (3,283,731)
Prepaid mailing costs 161,665 427,184
Prepaid expenses 160,761 (150,979)
Accounts payable 1,711,189 1,893,573
Deferred revenue 107,516 13,164
Accrued expenses ( 603,557) ( 69,412)
-------------- --------------
Net cash used in operating activities ( 991,649) (2,344,948)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (276,364) (31,664)
Change in other assets 12,560 3,550
-------------- --------------
Net cash used in investing activities (263,804) (28,114)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance under the Employee Stock Purchase Plan 15,998 11,021
Proceeds from exercise of stock options 247,025 20,875
-------------- --------------
Net cash provided by financing activities 263,023 31,896
-------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (992,430) (2,341,166)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,289,645 2,624,990
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,297,216 $ 283,824
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period -
Income Taxes $ 260,500 $ 2,000
============== ==============
Interest $ --- $ ---
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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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, 2000 are not necessarily indicative of the results to be expected for the
fiscal year ending December 31, 2000.
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, 1999. 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. Basic and Diluted Net Income Per Common Share
---------------------------------------------
The Company applies the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share, which establishes standards for
computing and presenting earnings per share. For the quarters ending March 31,
1999 and March 31, 2000 options to purchase a total of 325,001 and 408,267
common shares, respectively, have been excluded from the calculation of diluted
earnings per share. These shares are considered antidilutive as the Company has
recorded a loss for both periods.
3. Comprehensive Income (Loss)
---------------------------
SFAS No. 130, Reporting Comprehensive Income, requires disclosure of all
components of comprehensive income (loss) on an annual and interim basis.
Comprehensive Income (loss) is defined as a change in equity of a business
enterprise during a period from transactions or other events and circumstances
from nonowner sources. The Company did not have any items of comprehensive
loss for the quarters ended March 31, 1999 and March 31, 2000, and
therefore, total comprehensive loss was the same as reported net loss for those
periods.
4. Change in Accounting Estimate
-----------------------------
During the quarter ended March 31, 2000, the Company performed a review of its
amortization period for acquisition mailing costs. Based on this review of the
period over which revenue is generated from acquisition mailings, the Company
made a change in accounting estimate that reduced the period over which
acquisition mailing costs are amortized. This change in estimate resulted in
additional marketing expense of approximately $632,000 for the quarter ended
March 31, 2000. This change in estimate increased loss per share by $0.16.
5. Purchase Price Advance from Liquid Holdings
-------------------------------------------
During 1999, the Company received $1,250,000 from Liquid Holdings, Inc. related
to the proposed merger with Liquid Acquisition Corp., a subsidiary of Liquid
Holdings Inc. As this amount was refundable by the Company under certain limited
circumstances, it was recorded as a liability on the balance sheet at December
31, 1999. This amount was recognized as other income during the quarter ended
March 31, 2000 upon the automatic termination of the merger agreement on
February 22, 2000.
5
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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, 1999 on file with the U.S. Securities and Exchange Commission.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Geerlings & Wade is a direct marketer and Internet retailer of premium
wines and wine-related merchandise to retail consumers. The Company currently
maintains licensed facilities in sixteen states. Federal, state and local laws
strictly govern the sale of wine in each market served by the Company.
Quarters Ended March 31, 1999 and March 31, 2000
Sales
Sales decreased $378,000, or 4.4%, from $8,530,000 in the quarter ended
March 31, 1999 to $8,152,000 in the quarter ended March 31, 2000. Sales levels
largely depend on response rates and the number of "house mailings," which are
product offerings to existing customers and of "acquisition mailings," which are
product offerings to potential new customers. Catalog, retail store and Internet
sales also contribute to total sales. Overall, sales from existing customers
decreased primarily due to fewer mailings to these customers as a result of
system-related conversion problems that were corrected by the beginning of
February 2000, to a reduction in outbound telemarketing and to mailing 387,000
fewer catalogs in the first quarter of 2000 than the first quarter of 1999.
Geerlings & Wade's sales from e-commerce transactions, however, increased from
$248,000 in the first quarter of 1999 to $1,027,000 in the first quarter of
2000, an increase of 314%. Many of these sales came from existing customers who
previously ordered Geerlings & Wade products by telephone. Improved response
rates to first quarter acquisition mailings in 2000 generated an additional
$650,000 in sales from these promotion mailings and helped offset the decline in
sales from existing customers. Sales of wine decreased 3.6% in the first quarter
of 2000 as compared to the first quarter of 1999 in markets in which the Company
has operated for at least one year. Sales of wine, however, increased 194% in
the Texas market, which was opened during the first quarter of 1999. The number
of twelve-bottle equivalent cases ("cases"), exclusive of wine reservation
sales, sold by the Company decreased by 3,471, or 4.3%, from 80,661 in the
quarter ended March 31, 1999 to 77,190 in the quarter ended March 31, 2000. The
average case price, exclusive of wine reservation sales, increased by $4.72, or
4.7%, from $101.28 in the quarter ended March 31, 1999 to $106.00 in the quarter
ended March 31, 2000. The increase in average case price reflects an increase in
the average price for wines featured in house mailings during the first quarter
2000. The average number of cases purchased per customer order was 1.03 in the
quarter ended March 31, 2000 compared to 1.07 in the first quarter of 1999. The
average number of cases per order was reduced by increased sales resulting from
acquisition mailings since the average cases per order from first time buyers is
significantly less than average cases per order from existing customers.
Gross Profit
Gross profit decreased $72,000, or 1.8%, from $4,102,000 in the quarter
ended March 31, 1999 to $4,030,000 in the quarter ended March 31, 2000. Gross
profit as a percentage of sales increased from 48.1% in the quarter ended March
31, 1999 to 49.4% in the quarter ended March 31, 2000. Gross profit attributable
to wine sales increased $1.24 per case, or 2.4%, from $51.00 per case in the
quarter ended March 31, 1999 to $52.24 per case in the quarter ended March 31,
2000. The increase in gross profit percentage resulted primarily from the
Company's ability to purchase wines at lower costs and to take advantage of a
favorable foreign exchange rate environment. However, this increase was offset
in part by the sale of
6
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accessories on www.geerwade.com at reduced prices since the end of the second
quarter of 1999 to encourage greater e-commerce sales and also by the increased
sales of nationally-branded wines, which sell at lower gross margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $977,000, or 21.2%,
from $4,604,000 in the quarter ended March 31, 1999 to $5,581,000 in the quarter
ended March 31, 2000 and increased as a percentage of sales from 54.0% in the
quarter ended March 31, 1999 to 68.5% in the quarter ended March 31, 2000. The
net increase in selling, general and administrative expenses is largely
attributable to increased shipping expense, which resulted from switching
couriers in certain states. Additionally, a change in an accounting estimate
made in the first quarter 2000 shortened the period over which the Company
amortizes costs of acquisition mailings. The estimate change had the effect of
increasing marketing expense in the first quarter of 2000 by $632,000. The
Company also incurred legal expenses of $49,000 related to a potential merger
with Liquid Holdings Inc. that was not consummated. Marketing expenses,
including the effect of the change in accounting estimate, increased $339,000
from $2,063,000 in 1999 to $2,402,000 in 2000.
Interest and Other Expense and Income
Interest income decreased from $15,000 in the quarter ended March 31, 1999
to $7,000 in the quarter ended March 31, 2000. This decrease in interest income
was due to having lower cash balances invested during the first quarter of 2000
as compared to the first quarter of 1999. There was no interest expense in
either the first quarter of 1999 or the first quarter of 2000. Other expense
increased by $69,000 due to a loss on the disposal of the Company's original
software system. Additionally, the Company recognized $1,250,000 in other
income representing a payment from Liquid Holdings Inc. in connection with a
potential merger with Liquid Holdings Inc. that automatically terminated on
February 22, 2000. The Company incurred expenses related to the unconsummated
merger of $825,000 in the fiscal year ending on December 31, 1999 and $49,000 in
the first quarter of 2000.
Provision for Income Taxes
The Company's recorded no provision (benefit) for income taxes for the
quarter ended March 31, 2000 due to the uncertainty of using this provision in
the near term. During the quarter ended March 31, 1999, the Company recorded a
benefit for income taxes of $204,000.
Liquidity and Capital Resources
The Company's primary working capital needs include purchases of inventory,
software development and advertising expenses related to e-commerce sites and
the cost of acquisition mailings and other expenses associated with promoting
sales. As of March 31, 2000, the Company had cash and cash equivalents totaling
$284,000. On April 13, 2000, the Company entered into a credit agreement with a
bank under which the Company can borrow up to a maximum principal amount equal
to the lesser of 50% of qualifying inventory or $5.0 million. Amounts borrowed
under this facility bear interest at the prime rate and are collateralized by
substantially all of the assets of the Company. Subsequent to the first quarter
end, the Company borrowed approximately $2 million under this credit facility.
During the quarter ending March 31, 2000, net cash of $2,345,000 was used
by operating activities, resulting principally from net losses and an increase
in inventory, which reductions were offset by decreases in accounts receivable,
prepaid mailing costs and an increase in accounts payable.
The Company invested $28,000 in computer hardware and software in the
first quarter of 2000.
At December 31, 1999 and March 31, 2000, the Company had working capital of
$10,054,000 and $8,627,000, respectively. The decrease in working capital was
primarily due to increases in inventory and accounts payable and a decrease in
cash and cash equivalents.
The Company presently believes that cash flows from operations and amounts
available under the new credit facility will be sufficient to meet the Company's
working capital and capital expenditure requirements for the foreseeable future.
7
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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 a
foreign exchange line of credit with BankBoston, N.A., which allows the Company
to enter into forward currency exchange contracts of up to $500,000 maturing on
any one day. As of March 31, 2000, the Company had two forward currency
exchange contracts to purchase approximately 3.77 million French francs (FF)
(equivalent to approximately $.60 million.)
Item 3: Quantitative and Qualitative Disclosure about Market Risk
The following discussion about the Company's market risk disclosures
involves forward-looking statements. Actual results could differ materially
from those projected in the forward-looking statements.
The Company is exposed to market risk related to foreign currency exchange
rates. The Company does not use derivative financial instruments for
speculative or trading purposes. The Company enters into foreign exchange
forward contracts to reduce its exposure to currency fluctuations on vendor
accounts payable denominated in foreign currencies. The objective of these
contracts is to neutralize the impact of foreign currency exchange rate
movements on the Company's operating results. The gains and losses on these
contracts are included in earnings when the underlying foreign currency
denominated transaction is recognized. Gains and losses related to these
instruments for the quarters ended March 31, 2000 and 1999 were not material to
the Company. Looking forward, the Company does not anticipate any material
adverse effect on its financial position, results of operations or cash flows
resulting from the use of these instruments. However, there can be no assurance
that these strategies will be effective or that transaction losses can be
minimized or forecasted accurately.
8
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PART II. OTHER INFORMATION
Item 5. On February 22, 2000, the Agreement and Plan of Merger among Liquid
Holdings Inc., Liquid Acquisition Corp. and the Company, which was entered into
by the parties on September 27, 1999, automatically terminated in accordance
with its terms. The termination provision in the merger agreement was triggered
when Liquid Holdings did not obtain binding replacement equity commitments by
February 21, 2000, in a form and from financing sources reasonably satisfactory
to the Company.
On April 5, 2000, David Pearce, the Company's Chief Financial Officer, was named
President and Chief Executive Officer following the resignation of Jay Essa, the
Company's previous President and Chief Financial Officer.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) The following filings were made on Form 8-K during the first
quarter: On January 27, 2000, a Form 8-K was filed reporting an
amendment dated as of January 26, 2000 to the Agreement and Plan
of Merger by and among Liquid Holdings Inc., Liquid Acquisition
Corp. and the Company dated September 27, 1999, as amended on
December 23, 1999. On February 22, 2000, a Form 8-K was filed
reporting the automatic termination as of February 22, 2000 of the
Agreement and Plan of Merger by and among Liquid Holdings Inc.,
Liquid Acquisition Corp. and the Company dated September 27, 1999,
as amended on December 23, 1999 and January 26, 2000.
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/ David R. Pearce
-------------------
Name: David R. Pearce
Title: President, Chief Executive
Officer and Chief Financial
Officer
Dated: May 15, 2000
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 283,824
<SECURITIES> 0
<RECEIVABLES> 1,121,128
<ALLOWANCES> 0
<INVENTORY> 12,765,510
<CURRENT-ASSETS> 16,285,639
<PP&E> 2,236,106
<DEPRECIATION> 1,292,066
<TOTAL-ASSETS> 17,961,850
<CURRENT-LIABILITIES> 7,658,583
<BONDS> 0
0
0
<COMMON> 38,559
<OTHER-SE> 9,807,216
<TOTAL-LIABILITY-AND-EQUITY> 17,961,850
<SALES> 8,151,731
<TOTAL-REVENUES> 8,151,731
<CGS> 4,122,055
<TOTAL-COSTS> 4,122,055
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (412,831)
<INCOME-TAX> 0
<INCOME-CONTINUING> (412,831)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (412,831)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
</TABLE>
