UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-22834
SUCCESSORIES, INC.
(Exact name of registrant as specified in its charter)
ILLINOIS 36-3760230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
919 Springer Drive, Lombard, Illinois 60148
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (630) 953-8440
NONE
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
Class Outstanding as of May 28, 1997
Common stock, $0.01 par value 5,774,843
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Consolidated Balance Sheets................... 3
Consolidated Income Statements................ 4
Consolidated Statement of Changes in
Stockholders' Equity.......................... 5
Consolidated Statements of Cash Flows......... 6
Notes to Consolidated Financial Statements.... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................. 14
Item 6. Exhibits and Reports on Form 8-K.............. 14
Signatures............................................. 15
Index to Exhibits...................................... 16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUCCESSORIES, INC.
Consolidated Balance Sheets
(Unaudited)
(in thousands)
May 3, February 1,
1997 1997
ASSETS
Current assets:
Cash $ 296 $ 0
Accounts and notes receivable, net of reserve
of $743,000 and $506,000 for doubtful accounts
and returns 3,741 4,157
Inventory, net 8,997 8,970
Prepaid catalog expenses 1,307 2,006
Other prepaid expenses 1,482 1,180
Total current assets 15,823 16,313
Property & equipment, net of accumulated depreciation
and amortization of $7,663,000 and $7,240,000 7,768 8,000
Notes receivable, net 298 301
Deposits 383 378
Deferred income taxes 5,375 5,375
Intangibles & other assets, net of accumulated
amortization of $1,121,000 and $1,065,000 2,328 2,313
TOTAL ASSETS $31,975 $32,680
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $5,701 $2,215
Accounts payable 2,934 2,318
Reserve for stores to be closed 420 420
Reserve for relocation-related expenses 242 497
Other accrued expenses 1,100 747
Total current liabilities 10,397 6,197
Long-term debt 349 4,094
Total liabilities 10,746 10,291
Minority interest in consolidated subsidiaries 444 509
Commitments and contingencies
Mandatorily redeemable Series B Preferred stock -
$100 par value, 1212 shares authorized and
outstanding 6,060 5,673
Stockholders' equity:
Common stock $.01 par - 20,000,000 shares
authorized; 5,706,000 and 5,208,000 shares
issued and outstanding, respectively 57 57
Common stock warrants 370 370
Additional paid-in capital 20,170 20,161
Accumulated deficit (5,797) (4,345)
Foreign currency translation adjustment (75) (36)
Total stockholders' equity 14,725 16,207
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $31,975 $32,680
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
SUCCESSORIES, INC.
Consolidated Income Statements
(Unaudited)
(all dollar amounts in thousands)
For the three months ended
May 3, May 4,
1997 1997
Net product sales $11,828 $11,608
Cost of goods sold 5,001 4,531
Gross profit on product 6,827 7,077
Fees, royalties & other income 305 153
Gross margin 7,132 7,230
Operating expenses 7,885 8,162
Loss from operations (753) (932)
Other income (expense):
Minority interest in subsidiaries (26) (22)
Interest income 1 6
Interest expense (344) (440)
Other income (expense) 0 11
Total other income (expense) (369) (445)
Loss before income taxes (1,122) (1,377)
Income tax expense (benefit) 0 (539)
Net loss (1,122) ($838)
Earnings (loss) per common and
common equivalent share ($0.25) ($0.16)
Weighted average number of common
and common equivalent shares
outstanding 5,706,000 5,216,000
The accompanying notes to consolidated financial statements
are an integral part of these statements.
SUCCESSORIES, INC.
Consolidated Statement of Changes In Stockholders' Equity
(Unaudited)
(all dollar amounts in thousand's)
Foreign
Additional Currency Total
Common Stock Paid-in Retained Translation Stockholders'
Share Amount Capital (Deficit) Adjustment Warrants Equity
Balance at
February 1,
1997 5,703,000 $57 $20,161 ($4,345) ($36) $370 $16,207
Net loss for
period (1,122) (1,122)
Foreign currency
translation
adjustment (39) (39)
Preferred stock
transactions:
Preferred
stock
dividends (86) (86)
Accretion of
Preferred
stock
discount (244) (244)
Common stock
transactions:
Sales of
common
shares 3,000 -- 9 9
Balance at
May 3,
1997 5,706,000 $57 $20,170 ($5,797) ($75) $370 $14,725
The accompanying notes to consolidated financial statements
are an integral part of these statements.
SUCCESSORIES, INC.
Consolidated Statements of Cash FlowsS
(Unaudited)
(in thousands)
For the quarter ended
May 3, May 4,
1997 1996
Cash flows provided by (used in) operating activities:
Net loss ($1,122) ($838)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization expense 461 514
Deferred income taxes (551)
(661) (875)
Changes in operating assets and liabilities:
Accounts and notes receivable 416 394
Inventories (27) 463
Prepaid catalog expense 699 585
Other prepaid expenses (302) (102)
Accounts payable 616 (2,660)
Accrued expenses 98 (43)
Change in minority interest 26 0
Other 6 39
Net cash provided by (used in) operating activities 871 (2,199)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (191) (221)
Net cash used in investing activities (191) (221)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuing common stock, net 0 48
Dividends paid (86) 0
Proceeds from debt borrowings 940 2,500
Repayment of debt (1,199) -
Net cash provided by (used in) financing activities (345) 2,548
Effect of exchange rate changes on cash (39) 0
NET INCREASE IN CASH 296 128
Cash at beginning of period 0 1,230
Cash at end of period $296 $1,358
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
SUCCESSORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION OF UNAUDITED FINANCIAL STATEMENTS:
The consolidated financial statements contained herein have been prepared by
management and are unaudited. The financial statements should be read in
conjunction with the financial statements and the notes thereto included in
the Annual Report on Form 10-K of Successories, Inc. ("Successories" or the
"Company") for the period ended February 1, 1997.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
results of the interim periods presented and all such adjustments are of a
normal recurring nature.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of all subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The results of franchise
operations have not been reflected in the Company's financial statements.
EARNINGS (LOSS) PER COMMON SHARE - Earnings (loss) per common and common
equivalent shares are computed by dividing net income (loss) less preferred
stock dividends by the weighted average number of common shares outstanding
during each period presented, including common share equivalents arising from
the assumed exercise of stock options and warrants. For the quarters ended
May 3, 1997 and May 4, 1996, common stock equivalents have been excluded from
the calculation of earnings per share as the effect of inclusion is anti-
dilutive.
PREPAID CATALOG EXPENSES/ADVERTISING - Effective May 1, 1995, the Company
adopted SOP 93-7, "Reporting on Advertising Costs," which outlines the
accounting for direct marketing advertising costs. The Company expenses the
production costs of advertising as it occurs, except for direct-response
advertising, which is capitalized and amortized over its expected period of
future benefit. Direct-response advertising consists primarily of mail order
catalogs for the Company's products. The capitalized costs of the advertising
are amortized over the twelve-month period following the date the catalog
was mailed based upon historical patterns of catalog response. The adoption
of this new accounting policy did not have a material effect on the Company's
financial statements. The advertising expense for the quarters ended May 3,
1997 and May 4, 1996 was $2,798,000 and $3,258,000, respectively.
STOCK OPTIONS AND WARRANTS - In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation."
This pronouncement establishes financial accounting and reporting standards for
stock-based employee compensation plans. This Standard requires the Company to
determine the fair value of its stock options at the date of grant and either
record the fair value as compensation expense in the financial statements or
disclose the pro-forma impact of such compensation on net income and earnings
per share in the notes to the financial statements. The Company adopted the
disclosure method of presentation and such disclosures were made in the year
end financial statements for the fiscal year ending February 1, 1997.
ACCOUNTS PAYABLE
Checks outstanding of approximately $67,000 at February 1, 1997, are included
in Accounts Payable.
RESERVE FOR STORES TO BE CLOSED
Represents a reserve account established for certain costs to be incurred in
connection with plans to close five under-performing stores during the fiscal
year ended January 31, 1998.
RESERVE FOR RELOCATION-RELATED EXPENSES
Represents a reserve account established for certain costs associated with
relocating and consolidating the Company's office, manufacturing and warehouse
facilities into a new facility in Aurora, Illinois.
OTHER PREPAID EXPENSES
Prepaid licensing cost is being capitalized and amortized over a three-year
period. Historically, this cost has been amortized over a two-year period.
The change in the amortization period was made to better approximate the
product life cycle.
RECLASSIFICATION
Certain prior period items have been reclassified to conform with the current
period presentation.
NOTE 3 - INVENTORIES:
(in thousands)
MAY 3, 1997 FEBRUARY 1, 1997
Finished goods $ 3,473 $ 4,057
Raw materials 5,839 5,081
9,312 9,138
Less-Reserve for obsolescence (315) (168)
TOTAL $ 8,997 $ 8,970
NOTE 4 - DEBT:
At May 3, 1997 and February 1, 1997, the Company's notes payable were as
follows:
(in thousands)
MAY 3, 1997 FEBRUARY 1, 1997
Line of credit facility:
Term loan $ 4,251 $ 4,495
Revolving credit loan 100 --
Subordinated notes (unsecured) 1,250 1,250
Subordinated notes payable
(unsecured) 300 400
Capital lease obligations 133 146
Other 16 18
Subtotal 6,050 6,309
Less - Current portion (5,701) (2,215)
Total Long-term debt $ 349 $4,094
On February 7, 1996, the Credit Agreement was amended to reestablish borrowing
capabilities through May 1, 1996 under the Revolving Loan to the lesser of (a)
75% of eligible receivables and 15% of eligible inventory, or (b) $2,500,000.
Two officers of the Company severally guaranteed borrowings under the loan up
to an aggregate amount of $1,000,000. On February 13, 1996, the Company
borrowed $2,500,000 under the amended Credit Agreement.
The bank further agreed to extend the maturity date of borrowing capability
under both the Term Loan and Revolving Loan to May 1, 1997. In return: (a)
the Company agreed to make repayments of borrowings under the Term Loan of
$75,000 per month commencing June 1, 1996; (b) the borrowing capabilities under
the Revolving Loan were amended to 50% to 70% of eligible receivables and 5% to
40% of eligible inventory depending upon various categories of such assets as
specified in the amendment and are subject to unlimited change at the
discretion of the bank; and, (c) the Company agreed to use their best efforts
to obtain by September 16, 1996, a minimum of $10,000,000 in the form of either
(i) a contribution of equity capital and/or (ii) subordinated debt which would
not become payable until all bank loans were repaid and would not mature
earlier than August 1, 1997. The use of any such proceeds would require the
bank's written consent. No change was made in interest rates or with respect
to the officers' guarantees.
Under the Credit Agreement, as amended, among other things, future
indebtedness, dividends and capital expenditures are restricted.
On December 16, 1996, the Credit Agreement was amended to change the borrowing
capabilities under the Revolving Loan to 20% of Eligible Retail Inventory with
all other borrowing base calculations remaining unchanged. The amendment also
ratified the Company's acquisition of British Links Golf Classics, Inc.
On December 17, 1996, the Credit Agreement was further amended to reflect the
payment by the Company of $4,000,000 on the $8,475,000 Term Loan and the bank's
agreement to increase the Company's Revolving Loan to a maximum of $4,000,000.
The interest rate for both credit facilities was set at the Prime Rate in
effect from time to time plus one percent. The maturity date for the Term Loan
and the Revolving Loan was extended to May 1, 1998. The amendment also
requires the Company to remit monthly principal and interest payments on the
Term Loan in the amount of $94,808. At May 3, 1997, there were $100,000 of
borrowings on the Revolving Loan.
On January 30, 1997, the Credit Agreement was further amended to allow for the
execution of a standby letter of credit by the Company which was previously
restricted by the terms of the Credit Agreement. The ability to issue a
standby letter of credit was required by the Company in order to provide
security in the amount of $500,000 in connection with the Company's
construction and lease and building of a new corporate headquarters and
manufacturing facility. The Company issued a letter of credit in February,
1997 in the amount of $500,000 with an expiration date of June 1, 1998. The
letter of credit reduced available borrowing by $500,000.
Interest on borrowings under the original credit facility that was in effect at
April 30, 1995 was at LIBOR reserve adjusted rate ("LIBOR") plus 1.5% to 1.75%
(7.56% to 7.81% at that date). Under the Credit Agreement effective July 31,
1995, borrowings under the Term Loan, at the option of the Company, bore
interest at LIBOR plus 2.50%, or the prime rate plus 0.25%. Interest on
borrowing under the Revolving Loan were at LIBOR plus 2.25%, or the prime rate.
Further, there was a fee of 0.5% on the Revolving Loan commitment. Effective
with the September 25, 1995 amendment, interest on the Term Loan was at the
prime rate plus 1.0% and on the Revolving Loan was at the prime rate plus
0.75%. Effective with the December 17, 1996 amendment, interest on the Term
Loan and on the Revolving Loan was at the prime rate plus 1.0%.
On November 10, 1995, the Company borrowed $1,500,000 from certain investors
(including senior executives and members of the Board of Directors). The
related subordinated notes were originally due on November 1, 1996, and bear
interest at 10%. Concurrent with these borrowings, warrants for the purchase
of120,000 shares of the Company's common stock were issued to the investors.
The warrants were valued at $378,000, which amount was recorded as a credit to
stockholders' equity with a contra-reduction of the subordinated notes. The
notes as so discounted are being accredited to the $1,500,000 principal balance
over the term of the notes by charges to income.
The Company extended the maturity date for $1,250,000 of the original amount
financed to November 11, 1997. The interest rate for the extended financing
remains at 10%. The Company granted 125,000 options on a pro rata basis to
each lender participating in the extended financing. As a result, interest
expense of $189,000 was recorded for the quarter ended May 3, 1997.
On October 1, 1996, as part of the British Links acquisition, the Company
executed a promissory note aggregating $400,000. $100,000 was paid on May 1,
1997 and $100,000 is due October 1, 1997, and $200,000 is due October 1, 1998.
Interest is at 8.25%.
NOTE 5 - INCOME TAXES:
At May 3, 1997 and May 4, 1996, the net deferred assets were $5,375,000 and
$1,600,000, respectively.
NOTE 6 - PREFERRED STOCK:
On September 16, 1996, the Company issued 400 shares of Series A Cumulative
Convertible Preferred Stock with a liquidation preference of $5,000 per share
and a par value of $100 per share in an off-shore transaction to a non-U.S.
person pursuant to Regulation S under the United States Securities Act of 1933,
as amended. Regulation S is a safe harbor exemption from registration under
the Securities Act for sales of securities that occur outside the U.S. The 400
shares of Series A Cumulative Convertible Preferred Stock were converted into
$2,000,000 of Common Stock during the year ended February 1, 1997.
On December 17, 1996, the Company issued 1,212 shares of Series B $100 par
Cumulative Convertible Preferred Stock in a transaction exempt from
registration pursuant to Regulation D under the Securities Act. Each share has
a liquidation preference of $5,000 and a par value of $100 per share.
The Series B Cumulative Convertible Preferred Stock is convertible into common
stock as follows:
(i) 50% of the shares are convertible into $3,030,000 of common stock
on the 61st day following the closing of the transaction;
(ii) 100% of the shares are convertible into $6,060,000 of common stock
on the 91st day following the closing of the transaction.
The convertible preferred shares are entitled to a dividend at a rate of 4.95%
per annum.
In the event that the Company enters into a transaction to sell assets or any
consolidation or in the event of a change in control, the Company is required
to redeem the Series B Preferred Stock.
For the period ended May 3, 1997, none of the shares of the Series B Cumulative
Convertible Preferred stock have been converted into Common Stock. The
accretion discount relating to Series B Preferred Stock for the quarter ended
May 3, 1997 was $387,000. From May 8 through May 20, 1997, approximately
$412,000 of Preferred stock was converted into Common stock.
NOTE 7 - EMPLOYMENT AGREEMENTS:
The Company has employment agreements with certain individuals requiring
minimum aggregate annual payments of $658,000. The employment agreements are
for a three-year term.
NOTE 8 - LEASE AND LEASE COMMITMENTS:
The Company occupies office, manufacturing and warehouse space under terms of a
lease agreement which expired on May 31, 1997. In July, 1996, the Company
signed a build-to-suit lease agreement with a 12-year term for a new facility.
The Company pays all operating expenses and real estate taxes, building
maintenance and repair, and fire and insurance premium costs in excess of
stipulated amounts. The Company's current lease has expired and the Company is
occupying its current space as a holdover tenant.
In addition, the Company leases its retail store locations under operating
leases having terms which are month-to-month or non-cancelable and expire at
varying times through fiscal year 2005. The Company is responsible for its
proportionate share of real estate taxes and maintenance in addition to
insurance for the leased facilities. In addition, certain leases require rent
payments equal to a percentage of sales in excess of predetermined levels.
In connection with the Company's relocation plan, commitments of approximately
$1 million have been made primarily relating to fixed assets and relocation
expenses, which will be financed using the available $4,000,000 on the
Revolving Loan and any remainder, if necessary, will be financed with operating
income of the Company.
The Company acquired various items of equipment under lease arrangements which
are being accounted for as capital leases.
NOTE 9 - STOCK OPTION PLAN:
The Company has a stock option plan, the Celex Group, Inc. Stock Option Plan
("the Option Plan"), and an employee stock purchase plan. The Company accounts
for these plans under APB Opinion No. 25, under which no compensation cost has
been recognized in the financial statements.
On July 30, 1996 the shareholders approved amendments to the Stock Option Plan
as follows: (1) increase the number of shares of Common stock that may be
issued thereunder from 950,000 to 1,450,000; (2) provide that non-qualified
options to purchase four thousand (4,000) shares of Common stock be granted
automatically to each person serving as a non-employee director immediately
following each Annual Meeting of shareholders.
NOTE 10 - EARNINGS (LOSS) PER SHARE:
FOR THE THREE MONTHS ENDED
MAY 3, 1997 MAY 4, 1996
Net income (loss) ($1,122,000) ($838,000)
Preferred stock dividends (330,000) --
Earnings (loss) attributable to
common shareholders ($1,452,000) ($838,000)
Weighted average number of common
equivalent shares outstanding 5,706,000 5,216,000
Earnings (loss) per common and common
equivalent share ($.25) ($.16)
NOTE 11 - 401(K) PLAN:
The Company has a 401(K) Retirement Savings Plan ("the Plan") in which full-
time employees who have completed one year of service are eligible to
participate in the Plan. Enrollment is open on the January 1st or July 1st
immediately following one year of service. The Company is required to match
$.20 on the dollar on the first 6% of deferral.
The Company contributions to the Plan were approximately $8,000 and $6,000 for
the quarters ended May 3, 1997 and May 4, 1996, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with, and is qualified
in its entirety by, the Consolidated Financial Statements and Notes thereto
included elsewhere in this Report.
The Company is a direct mail catalog company, specialty retailer and wholesaler
that designs, assembles and markets a diverse range of motivational and self-
improvement products, many of which are the Company's own proprietary designs.
Its products include distinctive lines of wall decor, desktop art, books, audio
tapes, personalized gifts and awards, greeting cards and mugs. In addition,
the Company sells other motivational products supplied by third parties. In-
house designers create proprietary art work and designs that can be used in
conjunction with a wide variety of products. Company personnel also customize
products to fulfill customers' special needs.
The majority of the Company's sales are derived from proprietary products that
have been internally developed, designed, or customized. All products are
designed to have a positive motivational or self-improvement theme which can be
used to reinforce basic business goals such as customer service, attitude and
teamwork, or to recognize achievement and good performance, or as customer
gifts. The Company's products also appeal to individuals for both personal and
professional motivation, and for gifts. They are also purchased by organized
sports teams and individual athletes for motivational or inspirational
purposes.
The Company has a wide range of customers, including corporate buyers
(executives, sales managers, human resource managers, and production managers
of larger corporations), entrepreneurial buyers (small business owners, home
office businesses, and sales professionals), as well as individual consumers,
schools and athletic organizations. The Company's products are marketed
primarily under its SUCCESSORIES and WINNERS Collection trade names through
direct marketing (both catalog and telemarketing), retail sales (both franchise
and Company-owned stores), and wholesale distribution.
Although the Company utilizes multiple distribution channels for its products,
the Company's products have similar purposes and uses in each channel of
distribution and similar opportunities for growth. The profitability varies
among products and distribution channels. The Company utilizes its facilities
interchangeably for each distribution channel. Furthermore, the marketing
channels are directed at a single customer base located primarily in the United
States.
For the quarters ended May 3, 1997 and May 4, 1996, respectively, retail sales,
direct mail sales and wholesale distribution sales accounted for the following
percentages of the Company's net product sales:
FOR THE QUARTER ENDED
May 3, May 4,
1997 1996
Retail 30% 32%
Direct Marketing 57% 52%
Wholesale distribution* 13% 16%
*Includes sales to franchisees.
The gross profit margins for retail sales attributable to Company-owned stores
are slightly lower than for direct marketing due to more non-proprietary
products being sold in retail. The gross profit margin for wholesale sales and
sales to franchisees is lower, since these sales are made primarily at a
significant discount from retail price.
RESULTS OF OPERATIONS
QUARTER ENDED MAY 3, 1997 COMPARED TO QUARTER ENDED MAY 4, 1996
Net product sales for the quarter ended May 3, 1997 increased 1.9% to
$11,828,000 compared to $11,608,000 for the quarter ended May 4, 1996. Of the
$220,000 net product sales increase, more than 40% of the increase is from
wholesale sales, with Direct Marketing showing an increase of over 30% with the
balance of the increase attributable to Retail sales. Same store sales
increased by 8.9% or $246,000 for the quarter ended May 3, 1997, when compared
to the same time period in the prior year.
Cost of goods sold as a percentage of net sales was 42% for the quarter ended
May 3, 1997 compared to 39% for the same quarter ended in the prior year. The
increase in the cost of goods sold percentage from the current year quarter
compared to the prior year quarter is primarily the result of the increase in
wholesale sales which have a lower gross profit margin and an increase in non-
proprietary sales in retail.
The increase in the cost of goods sold percentage from 1997 compared to the
prior year quarter is primarily the result of an increase in wholesale sales
which have a lower gross profit margin and therefore lower the overall
composite gross profit.
Operating expenses for the quarter were 67% of net product sales which
represents a significant improvement over the 70% operating expenses which were
experienced in the same quarter during the prior year. This percentage change
reflects the leveraging of certain expenses, such as advertising and facility
costs, against greater sales. Advertising expense was down approximately
$460,000 for the quarter when compared to the same quarter last year.
Interest expense decreased from $440,000 for the quarter ended May 4, 1996 to
$344,000 for the quarter ended May 3, 1997, a decrease of $96,000. This
decrease reflects debt repayments which have occurred subsequent to the quarter
ending May 4, 1996.
The net loss of ($1,122,000) for the quarter ended May 3, 1997 compares to a
net loss of ($838,000) for the quarter ended May 4, 1996. The increased loss
of $284,000, is primarily due to the recording of net tax benefit of $539,000
for the quarter ended May 4, 1996. As a percentage of sales, net loss
increased from (7.2%) for the quarter ended May 4, 1996 to a net loss of (9.4%)
for the quarter ended May 3, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ongoing cash requirements are for working capital, capital
expenditures and debt service. The Company expects to rely on cash generated
from operations, supplemented by the Company's revolving credit facility to
fund its principal cash requirements.
The Company's net working capital decreased from $10,116,000 on February 1,
1997, to $5,369,000 on May 3, 1997. The current ratio decreased from 2.63:1 on
February 1, 1997 to 1.51:1 on May 3, 1997. The decrease in working capital is
due almost entirely to the increase in the current portion of long-term debt.
Excluding the current portion of long-term debt from the net working
calculation results in only a modest increase between the two periods.
The Company's net property and equipment remained relatively even with February
1, 1997, decreasing 2.9% to $7,768,000 at May 3, 1997.
The Company believes that internally-generated funds and the credit facilities
will be sufficient to meet it current operating needs and to fund anticipated
capital expenditures in fiscal year ending January 31, 1998.
The funding for the relocation to the new facility as well as related leasehold
improvements of approximately $2,000,000 and the purchase of a new computer
system will be obtained by using the available $3,400,000 as of June 4, 1997 on
the Revolving Loan and any remainder will be obtained from operating income of
the Company.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Company. The
Company is, however, involved in routine litigation arising in the ordinary
course of its business, and, while the results of the proceedings cannot be
predicted with certainty, the Company believes that the final outcome of such
matters will not have a materially adverse effect on the Company's consolidated
financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter ended May 3, 1997.
See Index to Exhibits on Page 16, immediately following the Signature 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.
SUCCESSORIES, INC.
(Registrant)
Date: 6/13/97 By: /S/ JAMES M. BELTRAME
James M. Beltrame
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: 6/13/97 By: /S/ M. ANDREW KING
M. Andrew King
Chief Financial Officer
(Principal Financial Officer)
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION SEQUENTIAL PAGE
No.
3.1 Articles of Incorporation of Registrant (1)
3.2 Articles of Amendment to the Company's Articles of Incorporation
changing the Company's name to Successories, Inc. (2)
3.3 Certificate of Designation creating the Company's Series A
Cumulative Convertible Preferred Stock (2)
3.4 Certificate of Designation creating the Company's Series B
Cumulative Convertible Preferred Stock (2)
3.5 By-laws of Registrant (1)
4.1 Specimen Common Stock Certificate (1)
4.2 Specimen Series A Cumulative Convertible Preferred Stock
Certificate (2)
4.3 Specimen Series B Cumulative Convertible Preferred Stock
Certificate (2)
10.1 Form of Franchising Agreement (3)
10.2 Employment Agreement with Arnold M. Anderson dated
February 28, 1993 (1)
10.3 Credit Agreement with Harris Trust and Savings Bank (4)
10.4 Credit Agreement and Guaranty between the Company
and NBD Bank (5)
10.5 First Forbearance Agreement between the Company and NBD Bank (6)
10.6 Amended and Restated Credit Agreement between the Company
and NBD Bank dated as of July 31, 1995 (7)
10.7 Lease Agreements between LaSalle National Trust Bank as Trustee
under Trust No. 107739 and Celebrating Excellence (4)
10.8 Stock Option Instrument for Arnold M. Anderson dated November 19,
1991 (1)
10.9 Celex Group, Inc. Stock Option Plan (1)
10.10 Joint Venture Agreement with Morrison DFW, Inc. and related
documents (4)
10.11 Indemnification Agreement dated May 26, 1995 between the Company
and Arnold M. Anderson (7)
Indemnification Agreements in the form filed were also entered
into by the Messrs. James M. Beltrame, Seamas T. Coyle, Timothy
C. Dillon, C. Joseph LaBonte, Steven B. Larrick, Michael H. McKee,
Mervyn C. Phillips, Jr., Michael Singletary, Guy E. Snyder and
Peter C. Walts
10.12 First Amendment to the Credit Agreement between the Company and
NBD Bank dated as of September 25, 1995 (8)
10.13 Second Amendment to the Credit Agreement between the Company
and NBD Bank dated as of February 7, 1996 (9)
10.14 Form of Subordinated Note, Common Stock Purchase Warrant and
Subordination Agreement relating to issuance of $1,500,000
Subordinated Notes and Warrants to purchase 120,000 shares of the
Company's Common Stock (9)
10.15 Common Stock Option Agreement granted to Arnold M. Anderson
and Incentive Stock Option Agreement granted to Arnold M.
Anderson (9)
10.16 Common Stock Option Agreement granted to James M. Beltrame and
Incentive Stock Option Agreement granted to James M. Beltrame (9)
10.17 Third Amendment to the Credit Agreement between the Company
and NBD Bank dated as of May 2, 1996 (9)
10.18 Employment Agreement with Arnold M. Anderson dated March 1, 1996
(10)
10.19 Employment Agreement with James M. Beltrame dated June 1, 1996 (10)
10.20 Employment Agreement with Michael H. McKee dated June 1, 1996 (10)
10.21 Common Stock Option Agreement granted to James M. Beltrame dated
June 17, 1996 (10)
10.22 Agreement and Plan of Merger among Successories, Inc., British
Links Acquisition Corp., British Links Golf Classics, Inc., David
J. Houston and Michael McArthur dated October 1, 1996 (11)
10.23 Regulation D Securities Subscription Agreement between
Successories, Inc., Infinity Investors Limited and Seacrest
Capital Limited dated December 17, 1996 (2)
10.24 Registration Rights Agreement dated as of December 17, 1996, by and
among Successories, Inc., Infinity Investors Limited and Seacrest
Capital Limited (2)
10.25 Form of Subordinated Note Extensions, Stock Options and
Subordination Agreement relating to the extension of $1,250,000
of Subordinated Notes, and options to purchase 125,000 shares of
the Company's Common Stock (2)
10.26 Fourth Amendment to the Credit Agreement between the Company and
American National Bank & Trust Company of Chicago dated as of
December 16, 1996 (12)
10.27 Fifth Amendment to the Credit Agreement between the Company and
American National Bank & Trust Company of Chicago dated as of
December 17, 1996 (12)
10.28 Sixth Amendment to the Credit Agreement between the Company and
American National Bank & Trust Company of Chicago dated as of
January 30, 1997 (12)
21.1 Subsidiaries (4)
27.1 Financial Data Schedule (filed herewith)
_____________________________
(1) Previously filed with Registration Statement on Form SB-2, No. 33-76530C
filed on August 17, 1993, and incorporated herein by reference.
(2) Previously filed with Amendment Number 1 to the Registration Statement of
Form SB-2, No. 33-67530C filed on September 24, 1993, and incorporated
herein by reference.
(3) Previously filed with Post-effective Amendment Number 1 to the
Registration Statement of Form SB-2, No. 33-67530C filed on January 19,
1994, and incorporated herein by reference.
(4) Previously filed with the Annual Report on Form 10-K for the year ended
April 30, 1994 and incorporated herein by reference.
(5) Previously filed with the Company's Form 10-Q/A-1 for the quarter ended
July 31, 1995 and incorporated herein by reference.
(6) Previously filed with the Company's Form 8-K on June 7, 1995 reporting
Date of Event May 26, 1995, and incorporated herein by reference.
(7) Previously filed with the Annual Report on Form 10-K for the year ended
April 30, 1995, and incorporated herein by reference.
(8) Previously filed with the Company's Form 10-Q for the quarter ended
October 28, 1995, and incorporated herein by reference.
(9) Previously filed with the Company's Annual Report on Form 10-K for the
year ended February 3, 1996, and incorporated herein by reference.
(10) Previously filed with the Company's Form 10-Q for the quarter ended
August 3, 1996 and incorporated herein by reference.
(11) Previously filed with the Company's Form 10-Q for the quarter ended
November 2, 1996 and incorporated herein by reference.
(12) Previously filed with the Company's Annual Report on Form 10-K for the
year ended February 1, 1997, and incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> MAY-03-1996
<CASH> 296,000
<SECURITIES> 0
<RECEIVABLES> 3,741,000
<ALLOWANCES> 0
<INVENTORY> 8,997,000
<CURRENT-ASSETS> 15,823,000
<PP&E> 15,431,000
<DEPRECIATION> 7,663,000
<TOTAL-ASSETS> 31,975,000
<CURRENT-LIABILITIES> 10,397,000
<BONDS> 0
6,060,000
0
<COMMON> 57,000
<OTHER-SE> 14,668,000
<TOTAL-LIABILITY-AND-EQUITY> 31,975,000
<SALES> 11,828,000
<TOTAL-REVENUES> 12,133,000
<CGS> 5,001,000
<TOTAL-COSTS> 7,885,000
<OTHER-EXPENSES> 25,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 344,000
<INCOME-PRETAX> (1,122,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,122,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,122,000)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
