Dragonfly is teenage clothing store owned by Janet and Michael Thompson. They perceived teenage’s market to be an obvious market niche. The Thompson were not particularly worried about financing their new venture. Janet’s parents had expressed willingness to finance their new venture called Dragonfly.
Janet’s family decided to give the company authorization to issue 50.000 shares of stock with a par value $1. Initially 27.200 shares were issued, 20.400 shares to the Hepburns (Janet’s parents) for $20,400 in cash and 6800 shares to Janet and Michael for their 2004 Volvo with market value $6800 in cash.
The Hepburns loaned the young couple $102.000 at an annual interest rate 7,75%. The Thompson in return loaned this Money to Dragonfly in quarterly installment $2,281.41. The corporation also borrowed $41.000 from Seattle Saving and Loan Bank for leaseholder improvements.
The Thompson began looking for a site for their store. They decided to lease a suite at the crossroad’s shopping centre. The rents at Crossroad were roughly half ($ 10 per foot). They signed a lease 3000 square feet for Dragonfly ($2,550/month) or 6% of the monthly sales. They also agreed the maintenance costs about $578/month.
Dragonfly had lost money since it opened, with the accumulated deficit from both stores at the start of 2011. Sales had been lower then expected and much of the merchendise had been marked down significantly before it was sold. The gross margin were considerably lower than the industry average. Dragonfly was sadled with $108,000 of inventory, the Crossroad Mall was deteriorating rapidly.
The Thompson decided to open a second Dragonfly store in Bellevue mall 1450 square feet. They hoped to recycle merchandise between the two stores. In a worst-case scenario the Thompson thought they could fold the first Dragonfly store on March 1, 2013 when the lease was up and move the merchandise to the Bellevue location.