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 August 2, 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 36-3760233
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
2520 Diehl Road, Aurora, Illinois 60504
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (630) 820-7200
919 Springer Drive, Lombard, Illinois 60148
(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 September
1, 1997
Common stock, $0.01 par value 6,723,533
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 ............................................. 15
Item 4. Submission of Matters to a Vote of Security Holders ........... 15
Item 6. Exhibits ...................................................... 15
Signatures .............................................................. 16
Index to Exhibits ........................................................17
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUCCESSORIES, INC.
Consolidated Balance Sheets
(Unaudited) (all dollar amounts in thousands)
ASSETS August 2, February 1,
Current assets: 1997 1997
Cash and cash equivalents $ 495 $ 0
Accounts and notes receivable,
net of reserve of $750,000 and
$506,000 for doubtful accounts and
returns 4,494 4,157
Inventories, net 9,171 8,970
Prepaid catalog expenses 1,136 2,006
Other prepaid expenses 1,622 1,180
Total current assets 16,918 16,313
Property & equipment,
net of accumulated depreciation
and amortization of
$8,012,000 and $7,240,000 8,909 8,000
Notes receivable, net 296 301
Deposits 382 378
Deferred financing costs 483 0
Deferred income taxes 5,375 5,375
Intangibles & other assets,
net of accumulated amortization
of $1,121,000 and $1,065,000 2,516 2,313
TOTAL ASSETS $34,879 $32,680
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $2,313 $2,215
Accounts payable 2,945 2,318
Reserve for stores to be closed 383 420
Reserve for relocation-related expenses 210 497
Other accrued expenses 1,829 747
Total current liabilities 7,680 6,197
Long-term debt 7,791 4,094
Total liabilities 15,471 10,291
Minority interest in consolidated
subsidiaries 466 509
Commitments and contingencies
Mandatorily redeemable Series B
Preferred stock -
$100 par value, 0 and 1212 shares authorized and
outstanding, respectively 0 5,673
Stockholders' equity:
Common stock $.01 par - 20,000,000 shares authorized;
6,718,000 and 5,703,000 shares
issued and outstanding, respectively 67 57
Common stock warrants 370 370
Additional paid-in capital 25,742 20,161
Accumulated deficit (7,161) (4,345)
Foreign currency translation adjustment (76) (36)
Total stockholders' equity 18,942 16,207
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $34,879 $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 For the six months ended
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
Net product sales $13,061 $11,529 $24,889 $23,138
Cost of goods sold 6,349 5,016 11,350 9,564
Gross profit on product 6,712 6,513 13,539 13,574
Fees, royalties &
other income 306 269 610 422
Gross margin 7,018 6,782 14,149 13,996
Operating expenses 7,395 7,781 15,284 15,927
Loss from operations (377) (999) (1,135) (1,931)
Other income:
Minority interest
in subsidiaries (52) (11) (78) (34)
Interest income 2 11 3 18
Interest expense (650) (405) (993) (845)
Other income (expense) (73) 14 (73) 25
Total other expense (773) (391) (1,141) (836)
Loss before income taxes (1,150) (1,390) (2,276) (2,767)
Income tax expense
(benefit) 0 (582) 0 (1,120)
Net loss ($1,150) ($808) ($2,276) ($1,647)
Loss per common and
common equivalent share ($0.23) ($0.15) ($0.45) ($0.32)
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 thousands)
Foreign
Additional Currency Total
Common Stock Paid-in Retained Translation Stockholders'
Shares 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 (2,276) (2,276)
Foreign currency translation
adjustment (40) (40)
Preferred stock transactions:
Conversion of Series B
shares 1,005,000 9 5,551 5,560
Preferred stock dividends (153) (153)
Accretion of Preferred stock
discount (387) (387)
Common stock transactions:
Sales of
common shares 10,000 1 30 31
Balance at
August
2, 1997 6,718,000 $67 $25,742 ($7,161) ($76) $370 $18,942
The accompanying notes to consolidated financial statements
are an integral part of these statements.
SUCCESSORIES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(all dollar amounts in thousands)
For the six months ended
August 2, August 3,
1997 1996
Cash flows from operating activities:
Net loss ($2,276) ($1,647)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization expense 1,164 997
Deferred income taxes -- (1,132)
(1,112) (1,782)
Changes in operating assets and liabilities:
Accounts and notes receivable (337) 836
Inventories (201) 85
Prepaid catalog expenses 869 893
Other prepaid expenses (440) (415)
Deferred financing fees (483) 0
Accounts payable 627 (1,474)
Accrued expenses 758 (289)
Change in minority interest 43 0
Other (229) 39
Net cash used in operating activities (505) (2,107)
Cash flows from investing activities:
Purchase of property and equipment (1,717) (565)
Net cash used in investing activities (1,717) (565)
Cash flows from financing activities:
Proceeds from issuing common stock, net 31 154
Dividends paid (86) 0
Redemption of preferred stock (500) 0
Proceeds from debt borrowings 10,586 2,500
Repayment of debt (7,274) (150)
Net cash provided by financing activities 2,757 2,504
Effect of exchange rate changes on cash (40) 0
NET INCREASE (DECREASE) IN CASH 495 (168)
Cash at beginning of period 0 1,230
Cash at end of period $ 495 $ 1,062
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
August 2, 1997 and August 3, 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
advertising expense for the six months ended August 2, 1997 and August 3,
1996 was $5,012,000 and $6,071,000, 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,
respectively, 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)
August 2, 1997 February 1, 1997
Finished goods $ 2,701 $ 4,057
Raw materials 6,786 5,081
9,487 9,138
Less - Inventory reserves (316) (168)
Total $ 9,171 $ 8,970
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
(in thousands)
August 2, 1997 February 1, 1997
Furniture and equipment $ 9,550 $ 8,052
Leasehold improvements 7,279 7,096
Vehicles 92 92
$16,921 $15,240
Less - Accumulated depreciation
and amortization (8,012) (7,240)
$ 8,909 $ 8,000
In connection with the Company's relocation plan, commitments of
approximately $1 million have been made primarily relating to fixed assets
and relocation expenses.
NOTE 5 - DEBT:
At August 2, 1997 and February 1, 1997, the Company's notes payable were as
follows:
(in thousands)
August 2, 1997 February 1, 1997
Line of credit facility:
Term loan $ 7,500 $ 4,495
Revolving credit loan 1,713 --
Subordinated notes (unsecured) -- 1,250
Subordinated notes payable
(unsecured) 256 400
Subordinated notes payable 500 --
Capital lease obligations 135 146
Other -- 18
Subtotal 10,104 6,309
Less - Current portion (2,313) (2,215)
Total Long-term debt $ 7,791 $ 4,094
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
bore interest at 10%. Concurrent with these borrowings, warrants for the
purchase of 120,000 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 were being accreted 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.
On October 1, 1996, as part of the British Links acquisition, the Company
executed promissory notes aggregating $400,000. The final settlement on the
acquisition totaled $356,000. $100,000 was paid on May 1, 1997 and $100,000
is due October 1, 1997, and $156,000 is due October 1, 1998. Interest is at
8.25%.
On June 20, 1997 the Company entered into a new credit facility with The
Provident Bank of Cincinnati. The facility is comprised of three separate
traunches; a $7.5 million, six-year term loan; a $6 million credit line; and
a $3 million seasonal revolving credit line that operates from July through
December. All three loans expire in June, 2003. The loans are
collateralized by 100% of the inventory and accounts receivable of the
Company. The interest rates on the term loan and the revolving credit line
are prime plus 1.25% and prime plus .75%, respectively. The payment terms
for the six-year term loan are as follows: $500,000 due in year one,
$1,250,000 per year for the preceding two years, and $1,500,000 per
year for the last three years.
In July, 1997, the Company entered into a subordinated note agreement in the
amount of $500,000 with The Provident Bank of Cincinnati. The terms are the
same as provided in the new credit facility agreement dated June 20, 1997.
The Company issued 72,464 warrants to the bank as part of this agreement.
The extended loan of $1,250,000 (due on November 11, 1997) was paid off as
part of the new loan with The Provident Bank (see below). As a result, an
interest expense of $437,000 relating to the options was recorded for the
quarter ended August 2, 1997.
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.
For the period ended August 2, 1997, 1,212 shares of the Series B Cumulative
Convertible Preferred stock were converted into $5,560,000 of Common Stock,
and $500,000 of the Common Stock was redeemed by the Company. The accretion
discount relating to Series B Preferred Stock for the six months ended August
2, 1997 was $387,000.
NOTE 7 - LEASE AND LEASE COMMITMENTS:
The Company occupies approximately 25,000 square feet of office space and
approximately 100,000 square feet of manufacturing and warehouse space under
the terms of a 12-year lease agreement commencing June 1, 1997 through May
31, 2009. 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.
In addition, the Company leases its retail store locations under operating
leases having terms which are either month-to-month or which are
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.
NOTE 8 - 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 22, 1997 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 1,450,000 to 1,700,000; (2) provide for a one-time
grant of non-qualified options to purchase 10,000 shares of Common Stock to
each non-employee director serving on the Board continuously from January 1,
1996 through July 22, 1997; and (3) to amend the stock option agreements
with respect to options granted two non-employee directors under the Option
Plan on December 14, 1994 to reduce the exercise price from $14.66 to $5.75
per share.
NOTE 9 - EARNINGS (LOSS) PER SHARE:
For the three months ended For the six months ended
August 2, 1997 August 3, 1996 August 2, 1997 August 3, 1996
Net loss ($1,150,000) ($808,000) ($2,276,000) ($1,647,000)
Preferred stock
dividends (211,000) -- (541,000) --
Loss attributable
to common
shareholders ($1,361,000) ($808,000) ($2,817,000) ($1,647,000)
Weighted average number of
common and common equivalent
shares
outstanding 5,927,000 5,223,000 6,272,000 5,223,000
Loss per common and
common equivalent
share ($0.23) ($0.15) ($0.45) ($0.32)
NOTE 10 - 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 $15,000 and $12,000
for the six months ended August 2, 1997 and August 3, 1996, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
The Company in order to provide security in connection with the Company's
construction, lease and building of a new corporate headquarters and
manufacturing facility, 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.
The Company has signed a purchase commitment for new order entry software of
approximately $800,000. The purchase will be financed by the revolving
credit loan.
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 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 August 2, 1997 and August 3, 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 three months ended For the six months ended
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
Retail - Company
- -owned stores 30% 35% 30% 33%
Direct Marketing 44% 49% 50% 51%
Wholesale 26% 16% 20% 16%
The gross profit margins for retail sales attributable to Company-owned
stores are 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 are made at a significant discount from both Retail
and Direct Marketing prices.
RESULTS OF OPERATIONS
Quarter Ended August 2, 1997 Compared to Quarter Ended August 3, 1996
Net product sales for the quarter ended August 2, 1997 increased 13% to
$13,061,000 compared to $11,529,000 for the quarter ended August 3, 1996.
The $1,532,000 net product sales increase was due to a significant increase
in wholesale sales, coupled with a modest increase in Direct Marketing sales
and a slight reduction in Retail sales. The Direct Marketing sales would be
greater except for management intentionally mailing fewer catalogs,
particularly to prospective customers in June and July. By mailing fewer but
more efficient catalogs, division profits for Direct Marketing increased
primarily due to lower advertising costs. Retail same store sales increased
by 12% for the quarter ended August 2, 1997, when compared to the same
quarter in the prior year.
Cost of goods sold as a percentage of net sales was 49% for the quarter ended
August 2, 1997 compared to 44% for the same quarter ended in the prior year.
The increase in the cost of goods sold percentage is primarily the result of
two items. First, in anticipation of its move, the Company decided to hold a
moving sale to clear out older product at reduced prices (below cost in some
instances). The net impact of this sale was a loss of $223,000 at the gross
profit line, or an increase in the cost of goods sold as a percentage of net
sales, of 3%. The second item to increase the cost of goods sold percentage
was the significant increase in wholesale sales during the quarter which have
a lower gross profit margin and therefore raise the overall cost of goods
sold percentage.
Operating expenses for the quarter were 57% of net product sales which
represents a significant improvement over the 67% 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 $615,000
for the quarter when compared to the same quarter last year, and reflects the
impact of fewer, more efficient, mailings.
Operating expenses would have been even lower if not for one-time moving
expenses of $113,000 (costs related to the physical move that could not be
reserved for at the prior year-end per GAAP) that were recorded during the
quarter. The net impact of these non-recurring items, i.e., the gross profit
impact from the moving sale, coupled with the moving expense, was to reduce
operating income by $346,000 for the quarter.
Interest expense increased from $405,000 for the quarter ended August 3, 1996
to $650,000 for the quarter ended August 2, 1997, an increase of $245,000.
This increase in the current year quarter reflects expense associated with
stock warrants which was not reflected in the prior year quarter.
The accretion of the stock warrants is a non-cash charge that increased
interest expense for the quarter by $437,000. Stated differently, if not for
the stock warrant accretion, the interest expense would have been $213,000
for the quarter or $192,000 less than the same quarter last year.
The loss before taxes of ($1,150,000) is less than the loss before taxes for
the same period last year of ($1,390,000) by $240,000. After factoring out
the one-time impact of the move sale of $223,000, plus moving expenses of
$113,000, plus stock warrant amortization of $437,000, the loss before taxes
would have been ($377,000) or $1,013,000 less than last year's loss before
taxes of ($1,390,000).
The net loss of ($1,150,000) for the quarter ended August 2, 1997 compares to
a net loss of ($808,000) for the quarter ended August 3, 1996. In addition
to the one-time charges stated above, the increased loss of $342,000, is due
to the recording of a net tax benefit of $582,000 for the quarter ended
August 3, 1996. As a percentage of net sales, the net loss increased from
(7%) for the quarter ended August 3, 1996 to a net loss of (9%) for the
quarter ended August 2, 1997.
In regard to the earnings per share (EPS) calculation, the reader should note
that EPS is calculated by taking the net loss, subtracting the primarily
non-cash charges for preferred dividends and then dividing the net amount by
the weighted average shares outstanding.
Six Months Ended August 2, 1997 Compared to Six Months Ended August 3, 1996
Net product sales for the six months ended August 2, 1997 increased 8% to
$24,889,000 compared to $23,138,000 for the six months ended quarter ended
August 3, 1996. Of the $1,751,000 net product sales increase, most of the
increase is in Wholesale with a modest increase in Direct Marketing while
Retail showed a decrease. Retail same store sales increased by 10% for the
six months ended August 2, 1997, when compared to the same time period in the
prior year.
Cost of goods sold as a percentage of net sales was 46% for the six months
ended August 2, 1997 compared to 41% for the same period in the prior year.
The increase in the cost of goods sold percentage from the current year period
compared to the prior year period is the result of the same reasons cited
above in the quarterly analysis.
Operating expenses for the period were 61% of net product sales which
represents a significant improvement over the 69% operating expenses which
were experienced in the same period 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 $1,059,000 for the six months when compared to the same period
last year.
Interest expense increased from $845,000 for the six months ended
August 3, 1996 to $993,000 for the six months ended August 2, 1997, an
increase of $148,000. This increase reflects expense associated with stock
warrants which was not reflected in the prior year.
The loss before taxes of ($2,276,000) is less than the loss before taxes for
the same period last year of ($2,767,000) by $491,000. After factoring out
the one-time impact of the move sale of $223,000, plus moving expenses of
$113,000, plus stock warrant amortization of $625,000, the loss before taxes
would have been ($1,315,000) or $1,452,000 less than last year's loss before
taxes of ($2,767,000).
The net loss of ($2,276,000) for the six months ended August 2, 1997 compares
to a net loss of ($1,647,000) for the six months ended August 3, 1996. In
addition to the one-time charges stated above, the increased loss of $629,000 is
primarily due to the recording of a net tax benefit of $1,120,000 for the six
months ended August 3, 1996. As a percentage of net sales, the net loss
increased from (7%) for the six months ended August 3, 1996 to a net loss of
(9%) for the six months ended August 2, 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 $9,238,000 on August 2, 1997. The current ratio decreased from
2.63:1 on February 1, 1997 to 2.20:1 on August 2, 1997. The decrease in
working capital is due to decreases in prepaid catalog expenses coupled with
increases in accounts payable and accrued expenses. The decrease in prepaid
catalog expense is consistent with the decrease in advertising expense
discussed in the Results of Operations section.
The Company's net property and equipment increased significantly in relation
to February 1, 1997, increasing 11.4% to $8,909,000 at August 2, 1997. This
increase is primarily due to property and equipment purchases relating to the
Company's move to a new facility in Aurora, Illinois.
The Company believes that internally generated funds and the credit
facilities it has in place will be sufficient to meet current operating needs
and to fund anticipated capital expenditures, including the purchase of a new
computer system, during fiscal year ending January 31, 1998.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Successories, Inc.'s 1997 Annual Meeting of Shareholders was held
on July 22, 1997. Of the shares outstanding as of the record date, 4,961,908
were present at the meeting or represented by proxies, representing
approximately 85.9% of the total votes eligible to be cast.
(b) At the Annual Meeting of Shareholders, the shareholders took the
following actions:
(i) Each of the following persons was elected by the vote
indicated to serve as a Class II director of the Company until
the 2000 Annual Meeting or until his successor is elected
and qualified:
Name For Against Withheld
C. Joseph LaBonte 4,820,193 0 141,715
Mervyn C. Phillips,
Jr. 4,820,493 0 141,415
(ii) A proposal to amend and restate the Company's Stock Option
Plan was approved with 3,914,700 shares voted in favor of, and
875,776 shares voted against such amendment and restatement.
106,551 shares abstained from voting.
(iii)The appointment by the Board of Directors of Arthur Andersen
LLP as independent accountants for the fiscal year ending
January 31, 1998 was ratified. 4,912,817 shares were voted in
favor of, and 29,130 shares were voted against such
ratification. 19,961 shares abstained from voting.
ITEM 6. EXHIBITS
See Index to Exhibits on Page 17, 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: 9/16/97 By:
James M. Beltrame
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: 9/16/97 By:
M. Andrew King
Chief Financial Officer
(Principal Financial Officer)
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: 9/16/97 By: /s/ James M. Beltrame
James M. Beltrame
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: 9/16/97 By: /s/ M. Andrew King
M. Andrew King
Chief Financial Officer
(Principal Financial Officer)
INDEX TO EXHIBITS
Exhibit No. Description Sequential Page
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)
3.5 By-laws of Registrant (1)
4.1 Specimen Common Stock Certificate (1)
10.1 Form of Franchising Agreement (3)
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
10.15 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)
10.18 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)
10.29 Credit Agreement between the Company and The Provident Bank dated
as of June 20, 1997
10.30 First Amendment to Credit Agreement between the Company and The
Provident Bank dated as of July 16, 1997
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.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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