FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-7513
ARTISTIC GREETINGS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 16-0909929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE KOMER CENTER
ELMIRA, NEW YORK 14902
(607) 733-5541
(Address of principal executive offices, including Registrant's telephone
number)
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.
[ X ] Yes [ ] No
As of November 1, the Registrant had 5,853,164 shares of its common stock
issued and outstanding.
<PAGE>
ARTISTIC GREETINGS INCORPORATED
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
Unaudited Statements of Operations 4
Unaudited Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
Exhibit Index 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARTISTIC GREETINGS INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
September December
30, 1997 31, 1996
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) (Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 245 $ 99
Marketable securities:
Trading, at market
(cost $1,190 in 1997 and $2,418 in 1996) 1,413 2,881
Available for sale at market
(cost $405 in 1997 and $9 in 1996) 450 19
Trade receivables - net 1,958 1,252
Inventories:
Finished goods 874 652
Work-in-process 308 561
Raw materials and supplies 1,801 1,057
Prepaid advertising 5,519 3,064
Prepaid expenses and other current assets 599 500
TOTAL CURRENT ASSETS 13,167 10,085
Deferred advertising 3,386 2,113
Property, plant and equipment - net 17,090 16,237
Net cash surrender value of life insurance 475 433
Other assets 143 130
TOTAL ASSETS $34,261 $28,998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 145 $ 153
Accounts payable, trade 12,472 9,847
Accrued liabilities 1,519 2,386
Customer advances 903 451
Income tax payable 225 113
TOTAL CURRENT LIABILITIES 15,264 12,950
Long-term debt 5,022 1,034
Other liabilities 308 383
TOTAL LIABILITIES 20,594 14,367
Common stock subject to put option - 500,000 shares - 2,343
STOCKHOLDERS' EQUITY:
Common stock, par value $.10:
Authorized: 10,000,000 shares
Issued: 6,038,520 shares in 1997;
6,037,720 shares in 1996 654 604
Additional paid-in capital 11,055 11,042
Unrealized gains on marketable securities
held as available for sale, net of tax effect 38 1
Retained earnings 2,842 1,526
14,589 13,173
Less: Treasury stock at cost (695,356 and
215,356 shares in 1997 and
1996, respectively) (922) (885)
TOTAL STOCKHOLDERS' EQUITY 13,667 12,288
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $34,261 $ 28,998
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS.
ARTISTIC GREETINGS INCORPORATED
UNAUDITED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
QUARTER ENDED NINE-MONTHS ENDED
September 30, September 30,
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $24,272 $23,643 $70,703 $72,901
Cost of sales 10,700 9,750 30,095 29,732
Gross profit 13,572 13,893 40,608 43,169
Selling, advertising, general and administrative 12,519 12,835 38,240 40,236
expenses
INCOME FROM OPERATIONS 1,053 1,058 2,368 2,933
Other income (expense)
Interest and dividend income 19 11 70 26
Net unrealized (losses) gains on trading (95) 48 24 100
securities
Net realized (losses) gains on marketable 253 (3) 314 80
securities
Loss on disposal of fixed assets (451) - (451) -
Interest expense (70) (194) (204) (662)
Bonus & Profit Sharing Expense (138) - (441) -
Other 8 (323) 62 (778)
INCOME BEFORE TAXES 579 597 1,742 1,699
Provision for income taxes 8 - 426 -
NET INCOME $571 $597 $1,316 $1,699
Net income per common and common equivalent share $ 0.10 $ 0.09 $ 0.21 $ 0.27
Weighted average number of common shares 5,852,870 6,329,551 6,189,735 6,325,174
outstanding
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE>
ARTISTIC GREETINGS INCORPORATED
UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE-MONTHS ENDED
September 30, September 30,
1997 1996
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,316 $ 1,699
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,495 1,814
Loss on disposal of fixed assets 451 -
Allowance for Doubtful account (75) -
Net unrealized (gains) on trading securities 24 (100)
Net realized losses (gains) on marketable securities (106) (80)
Purchase of trading securities 23 (1,901)
Proceeds from sale of trading securities 1,036 1,243
Amortization of interest credit from New York State Urban
Development Corporation grant (75) (75)
Accretion of common stock subject to put option 157 234
Increase in cash surrender value of life insurance (42) (41)
Decrease (increase) in assets:
Trade receivables (631) 57
Income taxes receivable - 900
Inventories (713) 2,825
Prepaid advertising, prepaid expenses and other (2,567) 2,597
Deferred advertising (1,273) (265)
Increase (decrease) in liabilities:
Accounts payable, trade 2,625 (3,610)
Accrued liabilities (867) 986
Customer advances 452 457
Income taxes payable 112 -
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,296 6,740
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,799 -
Sale of marketable securities 150 2,694
Purchase of marketable securities (7) -
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,656) 2,694
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of amounts received under lines of credit (12,240) (20,804)
Proceeds received under lines of credit 16,290 16,245
Purchase of Treasury Stock (37) -
Proceeds from issuance of common stock 63 42
Payment of put option (2,500) -
Repayment of long-term debt (70) (4,551)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 1,506 (9,068)
Net increase in cash and cash equivalents 146 366
Cash and cash equivalents at beginning of period 99 529
Cash and cash equivalents at end of period $ 245 $ 895
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest $ 124 $ 517
Income taxes, net of refunds received 320 (818)
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS.
4
<PAGE>
ARTISTIC GREETINGS INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. STATEMENT OF MANAGEMENT
The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements, prepared in accordance
with generally accepted accounting principles, have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. The
Company incorporated reclassifications of 1995 information to conform to the
current presentations of its financial statements included herein. It is
suggested that these condensed financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company's 1996
report on Form 10-K.
In the opinion of management, the information contained herein reflects all
adjustments that are of a normal recurring nature and necessary to provide a
fair statement of the results of operations for the periods presented in the
statements of operations included herein.
NOTE 2. FORM 10-K
Reference is made to the following footnotes included in the Company's 1996
report on Form
10-K:
1. Summary of Significant Accounting Policies
2. Marketable Securities
3. Inventories
4. Property, Plant and Equipment
5. Accrued Liabilities
6. Income Taxes
7. Leases
8. Debt
9. Defined Contribution Savings Plan
10. Stock Options
11. Stockholders' Equity
12. Related Party Transactions
13. Commitments and Contingencies
14. Supplemental Disclosure of Non-cash Investing and Financing Activity
15. New Accounting Standards
5
<PAGE>
ARTISTIC GREETINGS INCORPORATED
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 3. NET INCOME PER SHARE
Net income or loss per common and common equivalent share is computed on
the basis of the weighted average of common and common equivalent shares
outstanding during the period. The weighted average number of shares
outstanding was 5,852,870 for the quarter ended September 30, 1997 and
6,329,551 for the quarter ended September 30, 1996.
The weighted average number of shares outstanding was 6,189,735 for the
nine-month period ended September 30, 1997 and 6,325,174 for the nine-month
period ended September 30, 1996.
The Company accounts for net income per common and common equivalent share
in accordance with the provisions of Accounting Principles Board Opinion No. 15
(APB No. 15). In March 1997, Statement of Financial Accounting Standards No.
128 (SFAS No. 128), "Earnings Per Share" was issued. SFAS No. 128 replaces
primary Earnings Per Share (EPS) with basic EPS. Basic EPS is computed by
dividing reported earnings available to common stockholders by weighted average
shares outstanding. No dilution for common share equivalents is included.
Fully diluted EPS, now called diluted EPS, is still required. The Company is
required to adopt SFAS No. 128 retroactively for periods ending after December
15, 1997. On a pro forma basis, basic EPS and diluted EPS for the three and
nine-months ended September 30, 1997 were $0.11 and $0.10, respectively, the
same as reported EPS.
NOTE 4. LONG-TERM DEBT
Long-term debt rose to $5.2 million since the end of the fiscal year 1996.
The Company funded from its revolving credit line (the "Revolver") with Marine
Midland Bank ("Marine"), a contractually specified $2.0 million advertising
payment to Valassis Communications, Inc. ("Valassis"), the Company's exclusive
provider of Free Standing Insert advertising media. A $2.5 million payment to
Valcheck was also funded from the Revolver. Additionally, the Company
utilized an additional $0.4 million from the Revolver to fund its working
capital. See "Item 2 - Liquidity and Capital Resources" for a further
description of the Company's cash flow. Finally, the City of Elmira mortgage
increased in principal amount by $0.3 million as a result of the inclusion of
interest which had been accruing since 1991.
6
<PAGE>
ARTISTIC GREETINGS INCORPORATED
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion contains forward-looking statements. For a
discussion of important factors that could cause actual results to differ
materially from such forward-looking statements, please carefully review the
discussion of the following Risk Factors: "Recent Losses; Potential
Fluctuations in Operating Results"; "Dependence on Effective Information
Systems"; "Dependence on Key Personnel"; "Potential Volatility of Stock Price";
and "Control by Present Stockholders," included under the heading "Risk
Factors" in Exhibit 99 to this Report, which Exhibit is incorporated by
reference herein, as well as the other information contained in this Report and
in the Company's periodic reports and other documents filed with the SEC.
Results of Operations:
NET SALES
In the third quarter of 1997, the Company's sales increased 2.7% to $24,272
from $23,643 in the comparable period of 1996. This increase is primarily a
result of the increase in check sales described below. Sales in the
personalized products category decreased 8.0% to $7,725 in the third quarter of
1997 from $8,395 in the comparable period of the prior year due to the
continued reduction in the purchase by the Company of less responsive mass
media advertising circulation. Catalog sales increased by 7.1% to $4,091 in
the third quarter of 1997 from $3,819 in 1996 due to an increase by 4% of
catalog circulation, additional product offerings and higher page counts in the
PERSONAL TOUCH<reg-trade-mark> catalog. Check sales increased by 10.6% to
$11,417 in the third quarter of 1997, from $10,320 the prior year. The higher
check sales was primarily attributable to an increase in first-time check
orders from increased circulation and better response rates in the Company'
free standing insert media.
For the nine months ended September 30, 1997, sales of $70,703 were 3.0%
lower than the $72,901 revenues reported for the comparable 1996 period. Check
sales grew 4.7% to $34,014 in the nine months of 1997 from $32,500 in the
comparable prior period. Personalized product sales decreased 8.4% to $25,254
in the first nine months of 1997 from $27,581 in the first nine months of 1996.
This decrease resulted from the reduction in the purchase of less responsive
mass media circulation. Catalog shipments were 2.0% lower at $8,996 through
September 30, 1997, as compared to $9,175 in 1996, which reflects the effects
of a reduction in mailings in the first quarter of 1997 as the result of
eliminating less profitable names from the Company's solicitation efforts.
COST OF SALES
The major components of cost of goods sold are materials, which consist
primarily of paper and gift items; direct labor; and manufacturing overhead.
The cost of materials in the third quarter of 1997 increased 28.5% to
$6,522 from $5,075 in the comparable period of 1996, which is a 6.2% increase
as a percentage of sales between periods. The increase as a percentage of
sales represents a higher component of material cost allocated for check
production with the Company's outsourcing partner, as compared to mostly in-
house manufacturing in the prior comparable period. In the third quarter of
1996, the Company engaged in an outsourcing arrangement with The John H.
Harland Company ("Harland") for the manufacturing of all its check-printing
requirements (the "Outsourcing Agreement"). The increase in check material
cost in connection with the Outsourcing Agreement was offset by less scrap and
exchanges in personalized products and catalog manufacturing, as well as a
reduction in manufacturing overhead and direct labor expense. The cost of
materials for the first nine months of 1997 increased 18.4% to $18,405 from
$15,538 in the 1996 comparable period, which reflects a 4.7% increase as a
percentage of sales from year to year. The increase as a percentage of sales
is due to the reasons outlined above for the third quarter.
Direct labor decreased 24.7% to $1,326 in the third quarter of 1997 from
$1,762 in the third quarter of 1996, which represents a decrease of 2.0% as a
component of sales between periods. Direct labor for the first nine months of
1997 decreased 28.6% to $3,857 from $5,405 in the 1996 comparable period. This
represents a decrease of 2.1% as a component of sales between periods. Year-
to-year reductions in direct labor are directly associated with the diminished
labor required by the Company as a result of the Outsourcing Agreement, as well
as an internal reduction of direct labor due to increased efficiencies and less
exchanges within personalized products and catalog manufacturing.
Manufacturing overhead decreased 2.1% to $2,852 in the third quarter of
1997 from $2,913 in the comparable period of 1996, representing a 0.6% decrease
as a component of sales between periods. Employee benefits were lower in the
third quarter of 1997 due to lower employment levels attributable primarily to
the Outsourcing Agreement. Finally, depreciation expense decreased due to the
sale of check-printing equipment in the third quarter of 1996 in connection
with the Outsourcing Agreement. Manufacturing overhead decreased 10.9% to
$7,833 in the first nine months of 1997 from $8,789 in the comparable period of
1996. This represents a decrease of 1.0% as a component of sales during that
period. The same reasons as outlined above for quarterly manufacturing
overhead changes apply to the nine-month changes from 1996 to 1997.
SELLING, ADVERTISING, GENERAL AND ADMINISTRATIVE (SG&A)
The three largest components of SG&A expenses are advertising, postage and
labor.
Advertising expense of $8,152 in the third quarter of 1997 decreased 6.9%
from $8,752 in the comparable period of 1996, which represents a decrease of
3.4% as a component of sales between periods. Advertising expense decreased
8.6% to $25,545 in the first nine months of 1997 from $27,936 in the comparable
period of 1996, which represents a decrease of 2.2% as a component of sales
between the periods. Advertising expense changes through September 30, 1997
represent the continuation of the Company's strategy to forego less profitable
advertising circulation while better leveraging the dollars spent to produce
higher sales.
Postage and shipping expense in the third quarter of 1997 increased 12.9%
to $2,380 from $2,108 in the comparable period of 1996, which represents a .9%
increase as a component of sales. The increase in postage is attributable to
an increase in the cost of check postage, shipping and handling with Harland,
offset by a decrease in this category for personalized products due to lower
exchanges and returns. Postage and shipping expense for the first nine months
of 1997 increased 1.7% to $6,637 from $6,526 in the comparable period of 1996,
which represents an increase of .2% as a component of sales. The same reasons
as above for quarterly postage and shipping changes apply to the nine-month
changes from 1996 to 1997.
Administrative expense increased in the third quarter of 1997 by 0.6% to
$1,987 from $1,975 in the comparable period of 1996, representing an increase
of .6% as a component of sales. Administrative expense increased in the first
nine months of 1997 by 4.9% to $6,058 from $5,774 in the comparable period of
1996, representing an increase of 1.5% as a component of sales. These
increases are primarily due to increased depreciation from the implementation
of a new management information computer system, higher professional fees
associated with the Company's discussions regarding the potential sale of the
Company as further described in Item 5 of this Report (the "Discussions"), and
non-recurring personnel-related expenses.
OTHER
The Company recognized other expense of $474 in the third quarter of 1997,
compared to an expense of $461 in the comparable period of 1996. Interest
expense decreased to $70 in the third quarter of 1997 from $194 in the
comparable period of 1996. The decrease in interest expense was due to
reductions in long-term borrowing associated with debt repayment in connection
with the Outsourcing Agreement. Please also see "Liquidity and Capital
Resources" for a further description of the Company's debt and cash flow
position. Net unrealized losses on trading securities were $95 in the third
quarter of 1997 compared to a gain of $48 in the comparable period of 1996.
The Company recognized other expense of $626 in the first nine months of 1997,
compared to an expense of $1,234 in the comparable period of 1996. Year-to-
year changes through September 30 are due to the same reasons as discussed
above. Additionally, the Company recognized a loss on the disposal of fixed
assets of $451.
TAX PROVISION
A tax provision of $8 was recorded in the third quarter of 1997 as compared
to no tax provision recorded in the third quarter of 1996. A tax provision was
recorded in the third quarter of 1997, reflecting an effective tax rate of 36%,
offset by income tax refunds for previous years of $201. The benefit of a net
operating loss carry forward was utilized in the third quarter of 1996, but due
to 1997 expected profitability, a tax provision was required. A $426 tax
provision was recorded in the first nine months of 1997 as compared to no tax
provision in the comparable nine months of 1996. The reason stated above
applies to the year-to-year comparison.
NET INCOME
For the reasons discussed above, the Company's net income in the third
quarter of 1997 decreased to $571 or $.10 per share, from the prior period of
$597 or $.09 per share. The Company's net income in the first nine months of
1997 decreased to $1,316 or $.21 per share, from a net income of $1,699 or $.27
per share, reflecting primarily that the Company paid no taxes in 1996.
LIQUIDITY & CAPITAL RESOURCES
Cash and cash equivalents, combined with marketable securities totaled
$2,108 at September 30, 1997 and $2,999 at December 31, 1996. Total
liabilities increased by $6,227 to $20,594 at September 30, 1997 from $14,367
at December 31, 1996, as a result of the Outsourcing Agreement, under which the
Company has no inventory for its check business but records accounts payable
for the cost of the subcontracted check production. Long-term debt increased
to $5,022 at September 30, 1997 from $1,034 at December 31, 1996 for the
reasons described in Note 5 to the Condensed Financial Statements. Income tax
payable increased to $225 at September 30, 1997 from $113 at December 31, 1996.
Accounts payable increased by 5.3% to $12,472 at September 30, 1997 from $9,847
at December 31, 1996, as inventories grew to service expected higher volume in
the second half of the year.
7
Working capital at September 30, 1997 was a negative $2.1 million. The Company
is operating with a working capital deficit as a result of the Outsourcing
Agreement, under which the Company has no inventory for its check business but
records accounts payable for the costs of Harland's check production. Cash
flows from operating activities in the third quarter of 1997 were positive by
$0.6 million as expected because of the Company's traditionally higher sales in
the third quarter.
The Company has historically met its cash requirements primarily from
operating activities. An aggregate of $4.5 million in payments were made in
June of 1997, all of which were funded from the Revolver. These payments, in
combination with negative cash flow of $1.0 million for the second quarter,
elevated the balance under the Revolver to $4.1 million with availability
thereunder capped by a borrowing base of $5.6 million. As of July 18, 1997,
the Company liquidated $1.5 million of its investments to pay down the
Revolver. As of November 1, 1997, the outstanding balance on the Revolver was
$5.4 million, with availability capped by a borrowing base of $6.4 million.
Operating activities are expected to fully fund the Company's cash requirements
in the fourth quarter.
Management believes that the operating activities of the Company, together
with the line of credit available under its Revolver, will substantially
support its cash requirements for the next twelve months and that sufficient
capital resources are available to the Company to provide adequate liquidity
overall. Management is of the opinion that inflation will not have a material
effect on the operations of the Company. The Company is in compliance under
all financial and operating covenants of the Revolver.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On October 22, 1997, the Company issued a press release stating that: "The
Company announced on September 30, 1997, that it was engaged in discussions
regarding a possible sale of the Company and those discussions are continuing
with no resolution to report at this time."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits. See Exhibit Index.
b) Reports on Form 8-K. None.
9
<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.
ARTISTIC GREETINGS INCORPORATED
Dated: November 14, 1997 By: /S/THOMAS C. WYCKOFF
Thomas C. Wyckoff
Chief Operating Officer & Executive Vice
President
(Acting Principal Financial and Accounting
Officer)
10
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGES
11 Statement re: computation of per See Note 3 to the Financial
share earnings Statements contained in
this report
27 Financial Data Schedule Filed only with EDGAR
filing, per Regulation S-K,
Rule 601(c)(1)(v)
99 Risk Factors Filed Herewith
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ARTISTIC
GREETINGS INCORPORATED'S FORM 10-Q FOR ITS QUARTER ENDED SEPTEMBER 30, 1997, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000007610
<NAME> ARTISTIC GREETINGS INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.00
<CASH> 245
<SECURITIES> 1,863
<RECEIVABLES> 2,033
<ALLOWANCES> 75
<INVENTORY> 2,983
<CURRENT-ASSETS> 13,167
<PP&E> 29,420
<DEPRECIATION> 12,330
<TOTAL-ASSETS> 34,261
<CURRENT-LIABILITIES> 15,264
<BONDS> 5,022<F1>
0
0
<COMMON> 654
<OTHER-SE> 13,013
<TOTAL-LIABILITY-AND-EQUITY> 34,261
<SALES> 70,703
<TOTAL-REVENUES> 70,703
<CGS> 30,095
<TOTAL-COSTS> 38,240
<OTHER-EXPENSES> 422
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204
<INCOME-PRETAX> 1,742
<INCOME-TAX> 426
<INCOME-CONTINUING> 1,316
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,316
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
<FN>
<F1>Long-term debt.
</FN>
</TABLE>
RISK FACTORS
RECENT LOSSES; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
Although the Company has for many years experienced year-to-year revenue
growth, it incurred net losses of $9.9 million and $.4 million in 1995 and
1994, respectively. There can be no assurance that revenue growth will
continue or that the Company will continue to achieve profitability in the
future.
The Company's operating results have fluctuated in the past and may fluctuate
in the future as a result of a variety of factors, some of which are outside of
the Company's control, including general economic conditions, specific economic
conditions in the retail trade industry, the mix of products sold and the cost
and types of advertising through which they are sold, and prices charged by
suppliers, among others.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of its core management team. While the Company has employment
agreements with its three key executives, they still have the ability to
voluntarily terminate their employment with the Company at any time, as do the
Company's other executives and employees. Competition for qualified personnel
in the Company's segment of the retail trade industry is relatively intense
and, from time to time, there are a limited number of persons with knowledge of
and experience in particular sectors of the Company's business. The Company's
success also will depend on its ability to attract and retain qualified
management, marketing, technical and other executives and personnel. The loss
of the services of key personnel, or the inability to attract additional
qualified personnel, could have a material adverse effect on the Company's
results of operations, development efforts and ability to expand. There can be
no assurance that the Company will be successful in attracting and retaining
such executives and personnel.
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been and may continue to be
highly volatile. See the discussion under Item 5 of the Company's 1996 Form
10-K Report, "Market for Registrant's Common Equity and Related Stockholder
Matters". Factors such as variations in the Company's revenue, earnings and
cash flow, the difference between the Company's actual results and the results
expected by investors and analysts, and announcements of new product offerings,
marketing plans or price reductions by the Company or its competitors could
cause the market price of the Company's Common Stock to fluctuate.
CONTROL BY PRESENT STOCKHOLDERS
In the aggregate, Stuart Komer and American Greetings Corporation control
approximately 48% of the Company's issued and outstanding Common Stock.
Accordingly, to the extent these stockholders act together in the voting of
their shares, they will have the ability to significantly influence the outcome
of matters put before the Company's stockholders.
