FORM 10-QSB. --- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996 TRANSITION REPORT
PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-13518
Gaylord Companies, Inc.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 31-1421571
- --------------------------------------------------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4006 Venture Court, Columbus, Ohio 43228
- --------------------------------------------------------------------------------
(Address of Principal Executive Office)
(614) 771-2777
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) 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
Statethe number of shares outstanding of each of the registrant's
classes of common equity, as of the last practicable date: 3,176,429 as of
November 14, 1996.
<PAGE>
GAYLORD COMPANIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 1996 1
(unaudited)
Consolidated Statements of Operations (unaudited) for the
Three and nine months ended September 30, 1996 and 1995 2
Consolidated Statements of Cash Flows (unaudited) for the
Three months ended September 30, 1996 and 1995 3
Notes to the financial statements 4-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-11
PART II - OTHER INFORMATION 12
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature 13
Exhibit Index 14-16
</TABLE>
<PAGE>
GAYLORD COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS:
Cash $ 48,572
Accounts receivable - trade 62,083
Other receivables 280,284
Inventories 2,041,140
Deferred income taxes - current 252,000
Prepaid expenses and other current assets 320,661
----------------
TOTAL CURRENT ASSETS 3,004,740
PROPERTY AND EQUIPMENT 582,762
GOODWILL 121,632
DEFERRED INCOME TAXES 459,789
INVESTMENT 125,000
OTHER ASSETS 37,847
----------------
$ 4,331,770
================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,754,298
Line of credit 395,000
Convertible notes 285,000
Sales tax payable 122,319
Current portion of long-term debt 214,493
Current installments of capital lease obligations 11,859
Other current liabilities 228,646
----------------
TOTAL CURRENT LIABILITIES 3,011,615
CAPITAL LEASE OBLIGATIONS 313
----------------
3,011,928
----------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Cumulative preferred stock, par value $.01 per share; 1,500,000 shares
authorized, 60,000 shares issued and outstanding 300,000
Common stock, par value $.01 per share; 10,000,000 shares
authorized, 3,116,429 shares issued and outstanding 31,164
Paid-in-capital in excess of par 1,966,547
Retained earnings (deficit) (977,869)
----------------
TOTAL STOCKHOLDERS' EQUITY 1,319,842
----------------
$ 4,331,770
================
</TABLE>
See notes to consolidated
financial statements.
1
<PAGE>
GAYLORD COMPANIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------------------------
1996 1995 1996 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
NET SALES $ 2,711,327 $ 3,084,108 $ 8,252,457 $ 8,823,759
COST OF GOODS SOLD, including store occupancy and
delivery costs 2,083,014 2,347,020 6,333,441 6,719,382
---------------- ---------------- ---------------- ----------------
GROSS PROFIT 628,313 737,088 1,919,016 2,104,377
OPERATING EXPENSES:
Store operating expenses 602,494 545,221 1,787,735 1,669,344
Administrative 410,246 276,772 1,034,928 854,903
Depreciation and amortization 48,146 60,967 144,270 193,507
---------------- ---------------- ---------------- ----------------
1,060,886 882,960 2,966,933 2,717,754
---------------- ---------------- ---------------- ----------------
OPERATING INCOME (LOSS) (432,573) (145,872) (1,047,917) (613,377)
---------------- ---------------- ---------------- ----------------
OTHER INCOME (EXPENSE):
Interest expense - net 79,783 96,886 229,091 267,204
Amortization of discount on notes payable - 17,292 - 51,875
Other income (expense) 389 (601) 10,263 (751)
---------------- ---------------- ---------------- ----------------
80,172 113,577 239,354 318,328
---------------- ---------------- ---------------- ----------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) (512,745) (259,449) (1,287,271) (931,705)
INCOME TAX EXPENSE (BENEFIT) - (103,780) (311,810) (372,683)
---------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) $ (512,745) $ (155,669) $ (975,461) $ (559,022)
================ ================ ================ ================
EARNINGS (LOSS) PER COMMON SHARE $ (0.17) $ (0.08) $ (0.35) $ (0.28)
================ ================ ================ ================
WEIGHTED AVERAGE COMMON SHARES USED 2,933,215 2,000,000 2,811,072 2,000,000
================ ================ ================ ================
</TABLE>
See notes to consolidated
financial statements.
2
<PAGE>
GAYLORD COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1996 1995
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (975,461) $ (559,022)
--------------- ----------------
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 144,270 187,185
Shares issued for services 42,429 -
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (19,985) (55,463)
Decrease (increase) in other receivables (57,577) (16,769)
Decrease (increase) in inventory (230,688) (142,695)
Decrease (increase) in prepaid expenses and other assets (209,290) (294,408)
Decrease (increase) in deferred income taxes (302,728) (359,793)
Increase (decrease) in accounts payable 271,984 228,163
Increase (decrease) in sales tax payable (56,983) (16,724)
Increase (decrease) in other current liabilties (107,388) 135,321
--------------- ----------------
Total adjustments (525,956) (335,183)
--------------- ----------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,501,417) (894,205)
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (14,803) (12,165)
--------------- ----------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (14,803) (12,165)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 1,017,500 850,000
Proceeds from excercise of options 70,000 -
Repayments of debt (414,271) (154,248)
Principal payments of capital lease obligations (7,456) (9,009)
--------------- ----------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 665,773 686,743
--------------- ----------------
NET INCREASE (DECREASE) IN CASH (850,447) (219,627)
CASH AT BEGINNING OF PERIOD 899,019 261,627
--------------- ----------------
CASH AT END OF PERIOD $ 48,572 $ 42,000
=============== ================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for:
Interest $ 37,919 $ 66,609
=============== ================
Income taxes $ - $ 100
=============== ================
</TABLE>
See notes to consolidated
financial statements.
3
<PAGE>
GAYLORD COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited, but
reflect all adjustments which, in the opinion of management, are
necessary for a fair presentation of financial position and the results
of operations for the interim periods presented. All such adjustments
are of a normal and recurring nature. The results of operations for any
interim period are not necessarily indicative of the results attainable
for a full fiscal year.
2. LOSS PER SHARE
Per share information is computed based on the weighted
average number of shares outstanding during the period with net income
(loss) reduced by preferred stock dividends.
3. PRIVATE PLACEMENT
In June 1996 the Company consummated a private placement to 12
investors of an aggregate of $622,500 of its Convertible Notes (the
"1996 Financing"). The Convertible Notes are due and payable on
December 11, 1996. Interest is payable at the rate of 5% per annum. The
principal amount of each Convertible Note is convertible into shares of
Common Stock at the rate of $1.50 per share. In the quarter ended
September 30, 1996 a total of $337,500 in debt principal was converted
into 225,000 shares of common stock. In connection with this
conversion, the Company wrote off a pro rata portion of unamortized
deferred finance costs, totaling approximately $110,000, to paid in
capital.
4. CONSULTING AGREEMENT
As of April 23, 1996, the Company entered into a twenty-four
month financial consulting and investor relations agreement with Solay,
Inc. Pursuant to the financial consulting and investor relations
agreement, Solay, Inc. is entitled to receive $135,000, which amount
has been prepaid by the Company. In addition, Solay, Inc. received
$65,000 in connection with financial advisory services rendered to the
Company in connection with the 1996 Financing. Pursuant to the
financial consulting and investor
4
<PAGE>
relations agreement, Solay, Inc. has the right to purchase 300,000
shares of Common Stock and 600,000 Warrants identical to the warrants
offered in the Initial Public Offering through October 23, 1996, for an
aggregate purchase price of $300,000. In addition, Rodika Salter, an
affiliate of Solay, Inc., has an option to purchase up to 200,000
shares of Common Stock until October 23, 1996 for $1.50 per share. In
connection with the 1996 Financing, Worthington Capital Corp. received
an aggregate of $35,175 of commissions and non-accountable expenses. In
connection with the 1996 Financing, Worthington Capital Corp. was
granted the right to acquire 100,000 shares of Common Stock and 200,000
Warrants identical to the Warrants offered in the Initial Public
Offering until October 23, 1996, for an aggregate purchase price of
$100,000.
5. BANK DEBT
In May 1996, the Company entered into a revised financing
agreement with Bank One. As of June 30, 1996, the Company had a
revolving line of credit of $395,000 and secured term debt in the
aggregate amount of $280,491. The bank debt bears interest at rates of
2.5% over the prime rate of interest. The line of credit and the
secured term debt mature on January 10, 1997. Under the bank loan
agreements, no additional advances will be made under the line of
credit through the maturity date of January 10, 1997.
6. STOCK OPTIONS
During the quarter ended September 30, 1996, Solay, Inc.
exercised options to purchase 141,429 shares of common stock for $1.00
per option for which each option excercised also received two warrants.
7. DEFAULT ON BANK LOAN
At September 30, 1996, the Company was in default of the
financial performance covenants on its bank loan.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 and 1996
Consolidated Operations
The Company incurred a net loss of $512,745 in the three months ended
September 30, 1996 as compared to a net loss of $155,669 for the comparable
period in the prior year. The increase in the net loss in the three months ended
September 30, 1996 as compared to the same period in 1995 was primarily due to a
decrease in net sales, a lower gross profit margin, higher store operating
expenses and higher administrative costs. Additionally, the Company did not
record a tax benefit in the three months ended September 30, 1996 as compared to
a benefit of $103,780 for the three months ended September 30, 1995.
Net sales in the three months ended September 30, 1996 were $2,711,327,
a 12.1% decrease over net sales of $3,084,108 for the comparable period in the
prior year. The decrease was due primarily to the fact that the Superstore
bookstores in both Boardman and Cincinnati, Ohio posted significant sales
decreases as a result of new competition from stores operated by Barnes and
Noble, Inc. in close proximity during the three months ended September 30, 1996.
Such stores did not encounter such competition in the same period in 1995.
Cost of goods sold, including store occupancy and delivery costs, was
$2,083,014 for the three months ended September 30, 1996 as compared to
$2,347,020 for the three months ended September 30, 1995. Gross profit as a
percentage of net sales was 23.2% for the three months ended September 30, 1996
as compared to 23.9% during the same period in 1995. Management believes that
the primary reason for the lower gross profit as a percentage of net sales for
the three months ended September 30, 1996, as compared to the same period in
1995, is the lower gross profit as a percentage of sales in the Company's
Superstore in Boardman, Ohio, due to more aggressive discounting in response to
the early October 1995 opening of a superstore by Barnes and Noble, Inc. in
close proximity. In addition, while sales decreased in the Superstore in
Boardman, Ohio, for the three months ended September 30, 1996, as compared to
the same period in 1995, occupancy costs remained substantially the same.
Store level operating expenses were $602,494 for the three months ended
September 30, 1996 as compared to $545,221 for the three months ended September
30, 1995. Management believes that the increase in such expenses was due
primarily to the reclassification of certain payroll expenses to store level
operating expenses for the three months ended September 30, 1996. Such expenses
were classified as administrative expenses in the same period in 1995. Store
level operating expenses were 22.2% of net sales for the three months ended
September 30, 1996 as compared to 17.7% in the same period in 1995. Management
believes that the increase in such expenses as a percentage of net sales is due
primarily to the fact that while store level operating expenses increased in the
three months ended September 30, 1996 as compared to the same period in the
6
<PAGE>
prior year, net sales decreased and to the fact that certain payroll expenses
were reclassified to store level operating expenses for the three months ended
September 30, 1996. Such expenses were classified as administrative expenses in
the same period in 1995.
Administrative expenses for the three months ended September 30, 1996
were $410,246 compared to $276,772 for the three months ended September 30,
1995. Management believes that the increase in administrative expenses is due
primarily to the Company's anticipated expansion and to the inclusion of
expenses related to the Company's convertible debt financing in June of 1996.
Depreciation and amortization for the three months ended September 30,
1996 were $48,146 compared to $60,967 for the three months ended September 30,
1995. Management believes that the decrease in depreciation and amortization is
due primarily to the fact that some assets had been completely depreciated or
amortized in the three months ended September 30, 1996 as compared to the same
period in the prior year.
Interest expense for the three months ended September 30, 1996 was
$81,287 compared to $96,886 in the same period in the prior year. Amortization
of discount on notes payable for the three months ended September 30, 1996 was
$0 compared to $17,292 for the three months ended September 30, 1995. The
decrease in amortization of discount on notes payable is due primarily to the
fact that the amortization was accelerated upon the repayment of the bridge
loans in the original principal amount of $500,000 (the "Bridge Loans") upon the
completion of the Company's initial public offering in November of 1995 (the
"Initial Public Offering") and the amortization was subsequently discontinued.
Cookstore Operations
Net sales in the three months ended September 30, 1996 were $551,885, a
3.1% decrease over net sales of $569,743 during the same period in the prior
year. All Cookstore net sales are comparable in the period.
Cost of goods sold, including store occupancy and delivery costs, was
$409,466 for the three months ended September 30, 1996 as compared to $417,189
for the three months ended September 30, 1995. Gross profit as a percentage of
net sales was 25.8% for the three months ended September 30, 1996 as compared to
26.8% during the same period in 1995. Management believes that the decrease in
gross profit as a percentage of net sales was due primarily to a higher level of
markdowns in the three months ended September 30, 1996 as compared to the same
period in 1995 and higher occupancy costs in the 1996 period versus slightly
lower net sales.
7
<PAGE>
Bookstore Operations
Net sales in the three months ended September 30, 1996 were $2,159,442,
an 14.1% decrease over net sales of $2,514,365 in the prior year. The decrease
was due primarily to significant sales decreases in Superstores in both Boardman
and Cincinnati, Ohio, as discussed above.
Cost of goods sold, including store occupancy and delivery costs, was
$1,673,548 for the three months ended September 30, 1996 as compared to
$1,929,830 for the three months ended September 30, 1995. Management believes
that such decrease was due primarily to the decreased level of sales. Gross
profit as a percentage of net sales was 22.5% for the three months ended
September 30, 1996 as compared to 23.3% during the same period in 1995.
Management believes that the primary reason for the lower gross profit as a
percentage of net sales for the three months ended September 30, 1996, as
compared to the same period in 1995, is the lower gross profit as a percentage
of sales in the Superstore in Boardman, Ohio, due to more aggressive discounting
in response to the early October 1995 opening of a store by Barnes and Noble,
Inc. in close proximity. In addition, while sales decreased in the Company's
Book Superstore in Boardman, Ohio, for the three months ended September 30,
1996, as compared to the same period in 1995, occupancy costs remained
substantially the same.
Nine Months Ended September 30, 1995 and 1996
Consolidated Operations
The Company incurred a net loss of $975,461 in the nine months ended
September 30, 1996 as compared to a net loss of $559,022 for the comparable
period in the prior year. Management believes that the increase in the net loss
in the nine months ended September 30, 1996 as compared to the same period in
1995 was primarily due to lower net sales, lower gross profit margins, higher
store operating expenses and higher administrative costs. Additionally, the
Company did not record a tax benefit in the three months ended September 30,
1996 as compared to a benefit of $103,780 for the three months ended September
30, 1995.
Net sales in the nine months ended September 30, 1996 were $8,252,457,a
6.5% decrease over net sales of $8,823,759 for the comparable period in the
prior year. The decrease was due primarily to the fact that the Superstore
bookstores in both Boardman and Cincinnati, Ohio posted significant sales
decreases as a result of new competition from stores operated by Barnes and
Noble, Inc. in close proximity during the nine months ended September 30, 1996.
Such stores did not encounter such competition in the same period in 1995.
Cost of goods sold, including store occupancy and delivery costs, was
$6,333,441 for the nine
8
<PAGE>
months ended September 30, 1996 as compared to $6,719,382 for the nine months
ended September 30, 1995. Management believes that such decrease was due
primarily to the decreased level of sales. Gross profit as a percentage of net
sales was 23.3% for the nine months ended September 30, 1996 as compared to
23.9% during the same period in 1995. Management believes that the primary
reason for the lower gross profit as a percentage of net sales for the nine
months ended September 30, 1996, as compared to the same period in 1995, is the
lower gross profit as a percentage of sales in the Company's Superstore in
Boardman, Ohio, due to more aggressive discounting in response to the early
October 1995 opening of a superstore by Barnes and Noble, Inc. in close
proximity. In addition, while sales decreased in the Superstore in Boardman,
Ohio, for the nine months ended September 30, 1996, as compared to the same
period in 1995, occupancy costs remained substantially the same.
Store level operating expenses were $1,787,735 for the nine months
ended September 30, 1996 as compared to $1,669,344 for the nine months ended
September 30, 1995. Management believes that the increase in such expenses was
due primarily to the reclassification of certain payroll expenses to store level
operating expenses for the nine months ended September 30, 1996. Such expenses
were classified as administrative expenses in the same period in 1995. Store
level operating expenses were 21.7% of net sales for the nine months ended
September 30, 1996 as compared to 18.9% in the same period in 1995. Management
believes that the increase in such expenses as a percentage of net sales is due
primarily to the fact that while store level operating expenses increased in the
nine months ended September 30, 1996 as compared to the same period in the prior
year, net sales decreased and to the fact that certain payroll expenses were
reclassified to store level operating expenses for the nine months ended
September 30, 1996. Such expenses were classified as administrative expenses in
the same period in 1995.
Administrative expenses for the nine months ended September 30, 1996
were $1,034,928 compared to $854,903 for the nine months ended September 30,
1995. Management believes that the increase in administrative expenses is due
primarily to the Company's anticipated expansion and to the inclusion of
expenses related to the Company's convertible debt financing in June of 1996.
Depreciation and amortization for the nine months ended September 30,
1996 were $144,270 compared to $193,507 for the nine months ended September 30,
1995. Management believes that the decrease in depreciation and amortization is
due primarily to the fact that some assets had been completely depreciated or
amortized in the nine months ended September 30, 1996 as compared to the same
period in the prior year.
Interest expense for the nine months ended September 30, 1996 was
$243,355 compared to $267,204 in the same period in the prior year. Amortization
of discount on notes payable for the nine months ended September 30, 1996 was $0
compared to $51,875 for the nine months ended September 30, 1995. The decrease
in amortization of discount on notes payable is due primarily to the fact that
the amortization was accelerated upon the repayment of the Bridge Loans in the
original principal amount of $500,000 upon the completion of the Initial Public
Offering in November of 1995 and the amortization was subsequently discontinued.
9
<PAGE>
Cookstore Operations
Net sales in the nine months ended September 30, 1996 were $1,695,272,
a 4.9% increase over net sales of $1,615,561 during the same period in the prior
year. All Cookstore net sales are comparable in the period.
Cost of goods sold, including store occupancy and delivery costs, was
$1,248,365 for the nine months ended September 30, 1996 as compared to
$1,195,517 for the nine months ended September 30, 1995. Management believes
that such increase was due primarily to the increased level of sales. Gross
profit as a percentage of net sales was 26.4% for the nine months ended
September 30, 1996 as compared to 26.0% during the same period in 1995.
Management believes that the primary reason for the higher gross profit as a
percentage of net sales for the nine months ended September 30, 1996, as
compared to the same period in 1995, are that while sales increased for the nine
months ended September 30, 1996, as compared to the same period in 1995,
occupancy costs remained the same.
Bookstore Operations
Net sales in the nine months ended September 30, 1996 were $6,557,186,
a 9.0% decrease over net sales of $7,208,198 in the prior year. Management
believes that the decrease was due primarily to significant sales decreases in
Superstores in both Boardman and Cincinnati, Ohio, as discussed above.
Cost of goods sold, including store occupancy and delivery costs, was
$5,085,078 for the nine months ended September 30, 1996 as compared to
$5,523,865 for the nine months ended September 30, 1995. Management believes
that such decrease was due primarily to the decreased level of sales. Gross
profit as a percentage of net sales was 22.5% for the nine months ended
September 30, 1996 as compared to 23.4% during the same period in 1995.
Management believes that the primary reason for the lower gross profit as a
percentage of net sales for the nine months ended September 30, 1996, as
compared to the same period in 1995, is the lower gross profit as a percentage
of sales in the Superstore in Boardman, Ohio, due to more aggressive discounting
in response to the early October 1995 opening of a store by Barnes and Noble,
Inc. in close proximity. In addition, while sales decreased in the Company's
Book Superstore in Boardman, Ohio, for the nine months ended September 30, 1996,
as compared to the same period in 1995, occupancy costs remained substantially
the same.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Through September 30, 1996, the Company funded its requirements for working
capital and capital expenditures from net proceeds of its Initial Public
Offering, through borrowings under its bank credit facilities and convertible
notes, through the conversion to equity of $337,500 of the $622,500 original
principal of the convertible notes and $70,000 in proceeds from the excercise of
options. As of September 30, 1996, the Company had a revolving line of credit of
$395,000 and secured term debt in the aggregate amount of $214,493 and
subordinated notes in the aggregate amount of $285,000. The bank debt bears
interest at rates of 2.5% over the prime rate of interest and the subordinated
notes bear an interest rate of 5.0%. The line of credit and the secured term
debt mature on January 10, 1997. The subordinated notes mature on December 10,
1996. Under the bank loan agreements, no additional advances will be made under
the line of credit through the maturity date of January 10, 1997. The failure of
the Company to refinance the Company's existing credit facilities, of which
there can be no assurance, would have a material adverse affect on the Company.
At September 30, 1996, the Company was in default of the financial
performance covenants on its bank loan.
The Company's capital expenditures totaled $307,100 in fiscal 1994 and
$26,775 in fiscal 1995 and $14,803 in the nine months ended September 30, 1996
and $12,165 in the nine months ended September 30, 1995. Capital expenditures
were higher in 1994 because the Company opened two new Cookstores. Management
believes that capital expenditures, including the funds needed for opening three
or possibly four new retail stores, during the next 12 to 18 months would
aggregate approximately $750,000.
At September 30, 1996, the Company had recorded deferred tax assets of
approximately $711,789, primarily connected with net operating loss carry
forwards. The Company believes, although there can be no assurance, that the
benefits of these tax assets will be realized through future operations. Taxable
inc ome would need to average approximately $127,000 per year over the next 14
years for the Company to realize the full benefit of these deferred tax assets.
On November 7, 1995, the Company consummated an Initial Public Offering
of 750,000 shares of common stock and 1,725,000 warrants at a price to the
public of $3.00 and $0.10, respectively. In addition, certain principal
stockholders of the Company purchased 60,000 shares of the Company's Series A
Preferred Stock at a price of $5.00 per share.
In September 1996 the Company consummated a private placement to 12
investors of an aggregate of $622,500 of its convertible notes. The convertible
notes are due and payable on December 11, 1996. Interest is payable at the rate
of 5% per annum. The principal amount of each Convertible Note is convertible
into shares of Common Stock at the rate of $1.50 per share. The shares of Common
Stock issuable upon the conversion of the Convertible Notes were registered
under the Securities Act of 1933, as amended. As of September 30, 1996 an
aggregate principal amount of $337,500 of the convertible notes had been
converted to 225,000 shares of the Company's Common Stock.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - None
Item 2. CHANGES IN SECURITIES - None
Item 3. DEFAULTS UPON SENIOR SECURITIES
At September 30, 1996, the Company was in default of the
financial performance covenants on its bank loan.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS - None
Item 5. OTHER INFORMATION - None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit Index
b) Reports on Form 8-K - None
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GAYLORD COMPANIES, INC.
/s/ John Gaylord____________________
By: John Gaylord
Chairman and Chief Executive Officer
Date: November 14, 1996
13
<PAGE>
GAYLORD INDEX OF EXHIBITS.
Number Description of Exhibit
1.1 -- Form of Underwriting Agreement between the Company and the
Underwriters.+
3.1 -- Certificate of Incorporation of the Company.+
3.2 -- By-Laws of the Company.+
4.1 -- Form of Warrant Agreement between the Company and Continental Stock
Transfer & Trust Company, as warrant agent.+
4.2 -- Specimen Certificate of the Company's Common Stock.+
4.3 -- 1994 Stock Option Plan, as amended.+
4.4 -- Specimen Certificate of the Company's Warrant.+
4.5 -- Form of Underwriter's Warrants.+
4.6 -- Option Agreement between the Company and Lido Equities Corp.**
4.7 -- Option Agreement between the Company and Solay, Inc.**
4.8 -- Stock Option Agreement between the Company and Rodika Salter.**
4.9 -- Form of Convertible Note.**
10.1 -- Form of Employment Agreement between the Company and John D. Critser.+
10.2 -- Form of Employment Agreement between the Company and John Gaylord.+
10.3 -- Form of Employment Agreement between the Company and George Gaylord.+
10.4 -- Agreements between the Subsidiaries and Bank One, Columbus, N.A.+
10.5 -- Exchange Agreement, dated as of August 1, 1994, by and among George
Gaylord, John Gaylord, Janet Gaylord Goodburn, Susan Gaylord Noble,
Judy Gaylord, Jennifer Lynn Gaylord, John D. Critser and Gaylord
Companies, Inc.+
10.6 -- Lease, dated September 30, 1987, between UAP-Columbus JV326132, as
Landlord, and Gaylord Book Company, as Tenant, as amended, for
premises located at 1655 and 1657 West Lane Avenue, Lane Avenue
Shopping Center, Upper Arlington, Ohio.+
10.7 -- Lease, dated December 15, 1988, between Retail Projects of
Cincinnati, Inc., as Landlord, and Little Professor Enterprises,
Inc., as Tenant, as subsequently assigned to Gaylord's Inc. and
amended, for premises located at Space 180, Forest Fair Mall, Forest
Park, Ohio.+
10.8 -- Lease, dated June 13, 1989, between UAP-Columbus JV326132, as
Landlord, and The Cookstore, Inc., as Tenant, as amended, for premises
located at 1677 West Lane Avenue, M-1/4 and M-6, Lane Avenue Shopping
Center, Upper Arlington, Ohio.+
10.9 -- Lease, dated September 24, 1990, between Planned Communities
Company, as Landlord, and Little Professor Enterprises, Inc., as
Tenant, for premises located at Worthington Square Shopping Center,
Worthington, Ohio.+
10.10 -- Lease, dated July 16, 1992, between Sawmill Place Plaza Associates,
as Landlord, and Little Professor Enterprises, Inc., as Tenant, as
amended, for premises known as Space 122, Plaza at Sawmill Place, 2700
Sawmill Place Blvd., Columbus, Ohio.+
10.11 -- Lease, dated September 10, 1993, between UAP-Columbus, JV326132, as
Landlord, and Gaylord Book Co., Inc., as Tenant, as amended, for
premises located at 1595 West Lane Avenue, Upper Arlington, Ohio.+
10.12 -- Lease, dated September 13, 1993, between Aetna Life Insurance
Company, as Landlord, and Gaylord Companies, Inc., as Tenant, for
premises located at Worthington Mall, Worthington, Ohio.+
10.13 -- Lease, dated October 21, 1993, between Greater Boardman Plaza, Inc.,
as Landlord, and Gaylord Enterprises, Inc., as Tenant, for premises
located at Room No. 101, Greater Boardman Plaza Shopping Center, 255
Boardman-Canfield Road, Youngstown, Ohio.+
14
<PAGE>
Number Description of Exhibit
10.14 -- Lease, dated July 15, 1994, between Glimcher Properties Limited
Partnership, as Landlord, and Gaylord Companies, as Tenant, for
premises located at the Mall at Fairfield Commons, Store #E181,
Beavercreek, Ohio.+
10.15 -- Lease, dated August 19, 1994, between DeBartolo Capital Partnership,
as Landlord, and The Cookstore Inc., as Tenant, for premises located at
Room 240, Summit Mall Shopping Center, 3265 West Market Street, Akron,
Ohio.+
10.16 -- Sublease, dated August 31, 1994, between J.E. Hanger, Inc.,
sublessor and The Gaylord Companies, Inc., sublessee, as a sublease
under the master lease dated April 23, 1991 between Teachers Insurance
and Annuity Association, as lessor, and J. E. Hanger, Inc., as lessee,
for premises located at 4006 Venture Court, Columbus, Ohio.+
10.17 -- Consignment Agreement, dated February 25, 1989, between Ingram
Industries, Inc., as Consignor, and Gaylord's, Inc., as Consignee,
relating to the store located at 1018 Forest Fair Drive, Cincinnati,
Ohio.+
10.18 -- Consignment Agreement dated May 21, 1991, between Ingram Book
Company, as Consignor, and Little Professor Enterprises, Inc., as
Consignee, relating to the store located at 155 Worthington Square,
Worthington, Ohio.+
10.19 -- Consignment Agreement, dated February 10, 1993, between Ingram Book
Company, as Consignor, and Gaylord Book Company, as Consignee, relating
to the store located at 1646 W. Lane Avenue, Columbus, Ohio.+
10.20 -- Consignment Agreement, dated February 10, 1993, between Ingram Book
Company, as Consignor, and Little Professor Enterprises, Inc., as
Consignee, relating to the store located at 6490 Sawmill Road,
Columbus, Ohio.+
10.21 -- Consignment Agreement, dated December 1993, between Ingram Book
Company, as Consignor, and Gaylord Enterprises, Inc., as Consignee,
relating to the store located at 101 Boardman-Canfield Road, Boardman,
Ohio.+
10.22 -- License Agreement, dated as of January 1, 1994, between Sawworth Book
Company, as License Owner, and Little Professor Book Centers, Inc., as
Franchisor, relating to 155 Worthington Square, Worthington, Ohio. +
10.23 -- License Agreement, dated as of January 1, 1994, between Sawworth
Book Company, as License Owner, and Little Professor Book Centers,
Inc., as Franchisor, relating to 6490 Sawmill Road, Columbus, Ohio.+
10.24 -- License Agreement, dated as of January 1, 1994, between Gaylord
Enterprises, Inc., as License Owner, and Little Professor Book Centers,
Inc., as Franchisor, relating to 101 Boardman-Canfield Road, Boardman,
Ohio.+
10.25 -- License Agreement, dated as of January 1, 1994, between Gaylord's,
Inc., as License Owner, and Little Professor Book Centers, Inc., as
Franchisor, relating to 1018 Forest Fair Drive, Cincinnati, Ohio.+
10.26 -- License Agreement, dated as of January 1, 1994, between Gaylord Book
Company, as License Owner, and Little Professor Book Centers, Inc., as
Franchisor, relating to 1657 W. Lane Avenue, Columbus, Ohio.+
10.27 -- Agreement, dated as of January 1, 1994, between the Company and
Little Professor Book Centers, Inc.+
10.28 -- Letter Agreement, dated September 12, 1994, from Little Professor Book
Centers, Inc. to Gaylord Family Limited.+
10.29 -- Mutual Release Agreement, dated September 12, 1994, among Little
Professor Book Centers, Inc. and the Company Gaylord's, Inc., Gaylord
Family Investments, Inc., Gaylord Book Company, Sawworth Book Company,
Gaylord Enterprises, Inc., Gaylord Family Limited, George Gaylord and
John Gaylord.+
15
<PAGE>
Number Description of Exhibit
10.30 -- Form of Engagement Agreement: Financial Consultant Services between
the Underwriter and the Company.+
10.31 -- Consulting Agreement dated as of April 23, 1996 by and between Solay,
Inc. and the Company.**
10.32 -- Consulting Agreement between the Company and Lido Equities Corp.**
10.33 -- Amendments to Agreements between the Company and Bank One Columbus,
N.A.**
10.34 -- Amendment No. 1 to Employment Agreement between the Company and John
Critser.**
10.35 -- Amendment No. 1 to Employment Agreement between the Company and John
Gaylord.**
10.36 -- Amendment No. 1 to Employment Agreement between the Company and George
Gaylord.**
16.1 -- Letter from KPMG Peat Marwick, LLP on change in certifying accountant.+
21.1 -- List of Subsidiaries.+
27.1 -- Financial Data Schedule.
+ Previously filed with the Registration Statement on Form SB-2, Registration
No. 33-90832.
** Previously filed with the Registration Statement on Form SB-2, Registration
No. 33-07324.
16
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