Exhibit 99.6
THE VERMONT TEDDY BEAR COMPANY, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements presented herein give effect to the acquisition by THE VERMONT TEDDY BEAR COMPANY, INC. (the "Company") of substantially all of the assets and the assumption of certain liabilities of the floral delivery business Calyx & Corolla from Equity Resource Partners, LLC, a wholly owned subsidiary of Equity Resource Holdings, LLC, and additional financing incurred by the Company in connection with the completion of the acquisition. The acquisition has been accounted for using the purchase method of accounting. Accordingly, assets acquired and liabilities assumed have been recorded at their estimated fair values based upon appraisals and other analyses.
The unaudited pro forma consolidated balance sheet reflects adjustments as if the acquisition of Calyx & Corolla had occurred on June 30, 2003. The unaudited pro forma consolidated balance sheet as of June 30, 2003 includes the historical financial position of the Company and Calyx & Corolla as of June 30, 2003.
The unaudited pro forma consolidated statement of operations for the year ended June 30, 2003 reflects adjustments and gives effect to the acquisition as if it had occurred on July 1, 2002. The unaudited pro forma consolidated statement of operations for the year ended June 30, 2003 is based on the fiscal year statement of income for the Company and the historical results of Calyx & Corolla for the year ended June 30, 2003.
The unaudited pro forma adjustments are based upon estimates, available information and certain assumptions that management deems appropriate. Final purchase accounting adjustments may differ from the pro forma adjustments presented herein. The unaudited pro forma consolidated financial information does not purport to represent the Company's results of operations had the above transaction, in fact, occurred on the dates specified nor is it indicative of the operating results that may be expected for future periods. The unaudited pro forma statement of operations does not reflect any adjustments for cost savings or synergies that management expects to realize commencing upon consummation of the acquisition. No assurances can be made as to the amount of cost savings, if any, that actually will be realized.
The unaudited pro forma consolidated financial information is based on certain adjustments and assumptions described in the notes to the unaudited pro forma consolidated financial statements and should be read in conjunction therewith and with the Company's consolidated financial statements and related notes included in its Annual Report on Form 10-K for the fiscal year ended June 30, 2003 and the financial statements of Equity Resource Holdings, LLC incorporated by reference in Item 7 (a) of this report.
Vermont Teddy Bear Company, Inc.
Unaudited Pro Forma Combined Balance Sheet
June 30, 2003
ASSETS | VTBC Historical | | ERH Historical | | Pro Forma Adjustments | | VTBC Pro Forma |
Cash and cash equivalents | $5,168,177 | | $236,955 | | ( $ 236,955) | (b) | $ 4,968,177 |
| | | | | (200,000) | (a) | |
Restricted cash | 532,641 | | | | | | 532,641 |
Accounts receivable, trade | 62,214 | | 333,281 | | (360,181) | (b) (c) | 35,314 |
Inventories | 4,778,439 | | 524,218 | | (22,018) | (c) | 5,280,639 |
Prepaid expenses and other current assets | 522,173 | | 278,182 | | (50,000) | (b) | 750,355 |
Prepaid income taxes | 749,305 | | | | | | 749,305 |
Deferred income taxes | 525,522 | | | | | | 525,522 |
Total Current Assets | 12,338,471 | | 1,372,636 | | (869,154) | | 12,841,953 |
Property and equipment, net | 7,679,721 | | 802,479 | | (710,853) | (b) (c) | 7,771,347 |
Deposits and other assets | 985,843 | | 86,260 | | (86,260) | (b) | 985,843 |
Note receivable | 18,390 | | | | | | 18,390 |
Goodwill | | | | | 5,308,502 | (c) | 5,308,502 |
Trademarks and tradenames | | | | | 1,220,000 | (c) | 1,220,000 |
Other intangible assets (net of amortization) | | | 254,963 | | (254,963) | (b) (c) | |
| | | | | 310,000 | (c) | 310,000 |
Total Assets | $21,022,425 | | $2,516,338 | | $4,917,272 | | $28,456,035 |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | |
Note Payable | | | $2,019,000 | | ($2,019,000) | (b) | |
Current portion of: | | | | | | | |
Long-term debt | $ 783,000 | | 2,605,000 | | (2,605,000) | (b) | $ 983,000 |
| | | | | 200,000 | (a) | |
Capital lease obligations | 182,273 | | 29,764 | | (29,764) | (b) | 182,273 |
Accounts payable | 3,727,671 | | 2,304,888 | | (9,718) | (c) | 6,022,841 |
Accrued expenses | 1,416,992 | | 772,237 | | (663,623) | (b) | 1,698,812 |
| | | | | 173,206 | (d) | |
Deferred revenue | | | 1,474,361 | | (117,741) | (b) (c) | 1,356,620 |
Total Current Liabilities | 6,109,936 | | 9,205,250 | | (5,071,640) | | 10,243,546 |
Long-term debt, net of current portion | 1,695,000 | | 4,051,909 | | (4,051,909) | (b) | 2,495,000 |
| | | | | 800,000 | (a) | |
Capital lease obligations, net of current portion | 4,918,847 | | 61,918 | | (61,918) | (b) | 4,918,847 |
Deferred income taxes | 137,344 | | | | | | 137,344 |
Deferred rent, net | | | 237,855 | | (237,855) | (b) | |
Rental deposits | | | 28,940 | | (28,940) | (b) | |
Total Liabilities | $12,861,127 | | $13,585,872 | | ($8,652,262) | | $17,794,737 |
Series C Convertible Redeemable Preferred Stock | 164,889 | | | | | | 164,889 |
Series D Convertible Redeemable Preferred Stock | | | | | $2,500,000 | (a) | $2,500,000 |
Stockholders' Equity: | | | | | | | |
Preferred stock, $0.05 par value | 1,404,000 | | | | | | 1,404,000 |
Common stock, $0.05 par value | 401,676 | | | | | | 401,676 |
Additional paid-in capital | 13,518,960 | | | | | | 13,518,960 |
Treasury stock at cost | (11,263,628) | | | | | | (11,263,628) |
Retained Earnings (Member deficit) | 3,935,401 | | (11,069,534) | | 11,069,534 | (e) | 3,935,401 |
| | | | | | | |
Total Stockholder's Equity | 7,996,409 | | (11,069,534) | | 11,069,534 | | 7,996,409 |
| | | | | | | |
Total Liabilities and Stockholders' Equity | $21,022,425 | | $2,516,338 | | $4,917,272 | | $28,456,035 |
See accompanying notes
Vermont Teddy Bear Company, Inc.
Unaudited Pro Forma Combined Statement of Operations
For the Year Ended June 30, 2003
| VTBC Historical | | ERH Historical | | Pro Forma Adjustments | | Pro Forma Reclassifications | | VTBC Pro Forma |
Net Revenues | $40,275,401 | | $16,772,916 | | ($250,000) | (a) | | | $56,798,317 |
Cost of Goods Sold | 15,445,502 | | 4,421,636 | | | | 3,775,555 | (m) | 23,642,693 |
Gross Profit | 24,829,899 | | 12,351,280 | | (250,000) | | (3,775,555) | | 33,155,624 |
Operating Expenses: | | | | | | | | | |
Marketing and Selling Expenses | 17,261,185 | | 9,682,453 | | (931,375) | (b) | (3,775,555) | (m) | |
| | | | | (620,609) | (c) | | | |
| | | | | (74,019) | (d) | | | 21,542,080 |
General and Administrative Expenses | 4,968,382 | | 8,194,132 | | (3,623,624) | (e) | | | |
| | | | | (250,000) | (a) | | | |
| | | | | (176,662) | (f) | | | |
| | | | | (26,400) | (g) | | | |
| | | | | (10,789) | (d) | | | |
| | | | | (48,000) | (h) | | | 9,027,039 |
| 22,229,567 | | 17,876,585 | | (5,761,478) | | (3,775,555) | | 30,569,119 |
Operating Income (Loss) | 2,600,332 | | (5,525,305) | | 5,511,478 | | | | 2,586,505 |
Interest Income | 138,220 | | 697 | | (2,197) | (i) | | | 136,720 |
Interest Expense | (599,224) | | (582,763) | | (33,194) | (i) | | | (632,418) |
| | | | | 582,763 | (i) | | | |
Other Income | 5,796 | | 17,216 | | | | | | 23,012 |
Income(Loss) Before Income Taxes | 2,145,124 | | (6,090,155) | | 6,058,850 | | | | 2,113,819 |
Income Tax Provision | (873,717) | | | | 12,750 | (j) | | | (860,967) |
Net Income (Loss) | 1,271,407 | | (6,090,155) | | 6,071,601 | | | | 1,252,853 |
Series A Preferred Stock Dividends | (72,000) | | | | | | | | (72,000) |
Series C Preferred Stock Dividends | (18,525) | | | | | | | | (18,525) |
Series D Preferred Stock Dividends | | | | | (125,000) | (k) | | | (125,000) |
Accretion of Original Issue Discount | (54,492) | | | | | | | | (54,492) |
Net Income(Loss) Available to Common Stockholders | 1,126,390 | | (6,090,155) | | 5,946,601 | | | | 982,836 |
Basic Net Income Per Common Share | $0.21 | | | | | | | | $0.18 |
Diluted Net Income Per Common Share | $0.19 | | | | | | | | $0.17 |
Weighted Average Number of Common Shares Outstanding | 5,464,996 | | | | | | | | 5,464,996 |
Weighted Average Number of Diluted Common Shares Outstanding | 6,237,089 | | | | 708,215 | (l) | | | 6,945,304 |
See accompanying notes
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited pro forma consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading.
The unaudited pro forma consolidated balance sheet and statement of operations for the year ended June 30, 2003 is based on the historical financial position and results of operations of the Company and Calyx & Corolla as of and for the year ended June 30, 2003. The unaudited pro forma consolidated balance sheet as of June 30, 2003 contains adjustments to reflect the acquisition of Calyx & Corolla as if it had occurred on June 30, 2003. The unaudited pro forma statement of operations for the year ended June 30, 2003 contains adjustments to reflect the acquisition of Calyx & Corolla as if it had occurred on July 1, 2002.
The acquisition of Calyx & Corolla, representing substantially all of the operations of Equity Resource Holdings, LLC, has been accounted for using the purchase method of accounting. Accordingly, assets acquired and liabilities assumed have been recorded at their estimated fair values based upon appraisals or other analyses with appropriate recognition given to the effect of the Company's borrowing rate and income taxes.
Certain reclassification and adjustments have been made to the historical balance sheet and statement of income of Equity Resource Holdings, LLC, to conform to the Company's presentation and to adjust for certain assets and liabilities not acquired or assumed by the Company and for certain operating results pertaining solely to Equity Resource Holdings, LLC.
2. Allocation of Purchase Price
The following table sets forth the consideration paid by the Company, which is preliminary and subject to certain adjustments.
Cash consideration | $ 1,200,000 |
Series D Convertible Redeemable Preferred Stock | 2,500,000 |
Estimated transaction costs and expenses | 173,206 |
Total acquisition cost | $ 3,873,206 |
The following sets forth the pro forma allocation of the purchase consideration to working capital, fixed assets and intangible assets acquired as of June 30, 2003.
Working capital deficiency | $ (3,056,922) |
Property and equipment | 91,626 |
Goodwill | 5,308,502 |
Customer list | 310,000 |
Other intangible | 1,220,000 |
| $ 3,873,206 |
| |
3.UNAUDITED PRO FORMA ADJUSTMENTS
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
- To reflect the purchase consideration paid at closing. The purchase price consisted of cash of $1,200,000 (of which $200,000 was paid with cash on-hand and $1,000,000 was borrowed under a long-term note) and convertible redeemable preferred stock with a liquidation value of $2,500,000.
- To remove the assets and liabilities of ERH included in the historical balance sheet, which were not acquired or assumed pursuant to the terms of the purchase agreement. The assets not acquired and the liabilities which were not assumed on a pro forma basis as of June 30, 2003 consist of the following:
Cash | $ 236,955 |
Accounts receivable, trade | 353,367 |
Prepaid expenses | 50,000 |
Property, plant and equipment | 48,033 |
Deposits and other assets | 86,260 |
Other intangible assets | 199,407 |
Note payable | (2,019,000) |
Accrued expenses | (363,104) |
Deferred revenue | (103,367) |
Restructuring accrual | (300,519) |
Long term debt | (6,656,909) |
Capital lease obligations | (91,682) |
Deferred rent | (237,855) |
Rental deposits | (28,940) |
| $ (8,827,354) |
| |
c) The following adjustments were made to adjust the recorded assets and liabilities to their estimated fair value:
Accounts receivable | (6,814) |
Inventories (1) | (22,018) |
Property and equipment (2) | (662,820) |
Recognize goodwill | 5,308,502 |
Recognize trademark intangible asset | 1,220,000 |
Recognize customer list intangible | 310,000 |
Elimination of intangible asset of ERH | (55,556) |
Accounts payable | (9,718) |
Deferred revenue (3) | (14,374) |
| $ 6,067,202 |
| |
- The fair value of inventory acquired, primarily raw materials, was valued at the Company's current replacement cost.
- The fair value of fixed assets acquired to be used was valued at the current replacement costs for an asset with similar capacity.
- The fair value of deferred revenue was computed at the present value of amounts to be paid determined at the appropriate current interest rate.
d) To accrue for the estimated transaction costs of $173,206
e) To eliminate ERH member deficit incurred prior to acquisition
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
- To reflect elimination of revenue and bad debt expense for the FloralSource International, LLC accounts receivable not acquired by the Company.
- To reflect a reduction of depreciation and amortization expense related to the depreciation and amortization of the recorded fair value of assets using an estimated useful life of 3 to 5 years.
- To reflect the elimination of the occupancy expense and equipment lease costs due to the closing of the San Francisco, CA facility.
- To reflect elimination of equipment lease costs associated with contracts not assumed by the Company.
- To reflect elimination of Goodwill impairment loss recorded by Equity Resource Holdings, LLC
- To reflect elimination of expense related to consulting contract not assumed by the Company.
- To reflect elimination of operating lease for Vero Beach, Florida office space not assumed by the Company.
- To reflect elimination of operating lease for furniture at the Vero Beach, Florida office not assumed.
- To reflect an increase in interest expense of $33,194 from $1,000,000 of long-term debt incurred by the Company in connection with the acquisition of Calyx & Corolla from Equity Resource Holdings, LLC and a decrease of $582,673 in Equity Resource Holdings, LLC interest expense, which includes amortization of deferred financing fees and a decrease in interest income of $2,197 resulting from the use of $200,000 of cash to acquire Calyx & Corolla.
- To provide an income tax benefit for the results of pro forma operations and the pro forma adjustments using an effective income tax rate of 40.73 percent.
- To reflect additional preferred stock dividends in connection with the issuance of the Company's Series D Convertible Redeemable Preferred stock for the acquisition of Calyx & Corolla from Equity Resource Holdings, LLC.
- To represent the dilutive effect of the issuance of the Company's Series D Convertible Redeemable Preferred stock for the acquisition of Calyx & Corolla from Equity Resource Holdings, LLC. The 250 shares of Series D preferred stock are convertible into 708,215 shares of the Company's common stock.
- To reflect the reclassification of Calyx & Corolla fulfillment, shipping and handling expenses from operating expenses to cost of sales.
