<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 OCTOBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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.)
2520 DIEHL ROAD
AURORA, ILLINOIS 60504
(Address of principal executive offices) (Zip Code)
(630) 820-7200
(Registrant's telephone number, including area code)
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
--- ---
Registrant had 6,932,160 shares of common stock, $.01 par value,
outstanding as of November 22, 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUCCESSORIES, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets......................... 3
Consolidated Statements of Operations............... 4
Consolidated Statement of 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....... 16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk................................... 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................... 23
Item 2. Changes in Securities............................... 23
Item 6. Exhibits and Reports on Form 8-K.................... 23
SIGNATURES................................................................. 24
INDEX TO EXHIBITS.......................................................... 25
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
SUCCESSORIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
October 30, January 30,
1999 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 997,000 $ 1,615,000
Accounts and notes receivable,
net of allowance of $597,000 and
$660,000, respectively 4,496,000 3,706,000
Inventories, net 10,340,000 10,618,000
Prepaid catalog expenses 1,539,000 1,067,000
Other prepaid expenses 1,203,000 1,011,000
------------ ------------
Total current assets 18,575,000 18,017,000
Property and equipment, net 8,571,000 9,899,000
Notes receivable 132,000 297,000
Deferred financing costs, net 326,000 400,000
Deferred income taxes 5,476,000 5,476,000
Intangibles and other assets, net 866,000 888,000
------------ ------------
TOTAL ASSETS $ 33,946,000 $ 34,977,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,204,000 $ 6,035,000
Accounts payable 6,031,000 6,447,000
Accrued expenses 2,015,000 2,022,000
------------ ------------
Total current liabilities 13,250,000 14,504,000
Long-term debt 3,676,000 5,049,000
------------ ------------
Total liabilities 16,926,000 19,553,000
------------ ------------
Minority interest in subsidiaries -- 51,000
------------ ------------
Stockholders' equity:
Common stock, $.01 par value;
20,000,000 shares authorized;
6,932,160 and 6,913,293 shares
issued and outstanding, respectively 69,000 69,000
Preferred stock, $.01 par value;
1,000,000 shares authorized;
604,759 shares issued and outstanding
as of October 30, 1999 6,000 --
Common stock warrants 2,291,000 1,788,000
Notes receivable from stockholders (165,000) (273,000)
Additional paid-in capital 28,967,000 26,188,000
Accumulated deficit (14,085,000) (12,335,000)
Accumulated other comprehensive loss (63,000) (64,000)
------------ ------------
Total stockholders' equity 17,020,000 15,373,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 33,946,000 $ 34,977,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
SUCCESSORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
October 30, October 31, October 30, October 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net product sales $12,025,000 $12,400,000 $35,690,000 $36,167,000
Cost of goods sold 5,692,000 5,894,000 16,144,000 16,251,000
----------- ----------- ----------- -----------
Gross profit on product sales 6,333,000 6,506,000 19,546,000 19,916,000
Fees, royalties and other income 283,000 468,000 667,000 1,164,000
----------- ----------- ----------- -----------
Gross margin 6,616,000 6,974,000 20,213,000 21,080,000
Operating expenses 6,556,000 8,089,000 20,767,000 24,894,000
----------- ----------- ----------- -----------
Income (loss) from operations 60,000 (1,115,000) (554,000) (3,814,000)
----------- ----------- ----------- -----------
Other income (expense):
Interest expense (419,000) (380,000) (1,115,000) (1,051,000)
Minority interests in
subsidiaries (40,000) (12,000) (103,000) (22,000)
Interest income 21,000 3,000 49,000 15,000
Other, net (14,000) 31,000 5,000 65,000
----------- ----------- ----------- -----------
Total other expense (452,000) (358,000) (1,164,000) (993,000)
----------- ----------- ----------- -----------
Loss before income tax (392,000) (1,473,000) (1,718,000) (4,807,000)
Income tax -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (392,000) $(1,473,000) $(1,718,000) $(4,807,000)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Foreign currency translation
adjustment 1,000 5,000 1,000 10,000
----------- ----------- ----------- -----------
Comprehensive loss $ (391,000) $(1,468,000) $(1,717,000) $(4,797,000)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Loss per share:
Basic and diluted $ (.06) $ (.21) $ (.25) $ (.71)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
SUCCESSORIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Notes
Common Stock Preferred Stock Common Receivable Additional
---------------- ------------------ Stock From Paid-In Accumulated
Shares Amount Shares Amount Warrants Stockholders Capital Deficit
------- -------- ------ ------ -------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 30, 1999 6,913,293 $69,000 -- -- $1,788,000 $(273,000) $26,188,000 $(12,335,000)
Net loss -- -- -- -- -- -- -- (1,718,000)
Foreign currency translation
adjustment -- -- -- -- -- -- -- --
Stock warrants -- -- -- -- 503,000 -- -- --
Notes receivable payments
and write-off -- -- -- -- -- 108,000 -- --
Common stock transactions:
Sales of common shares 18,867 -- -- -- -- -- 40,000 --
Preferred stock transactions:
Sales of preferred shares -- -- 604,759 6,000 -- -- 2,739,000 --
Preferred stock dividend -- -- -- -- -- -- -- (32,000)
--------- ------- ------- ------- ---------- ---------- ----------- ------------
Balance at October 30, 1999 6,932,160 $69,000 604,759 $ 6,000 $2,291,000 $(165,000) $28,967,000 $(14,085,000)
--------- ------- ------- ------- ---------- ---------- ----------- ------------
--------- ------- ------- ------- ---------- ---------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Comprehensive Stockholders'
Loss Equity
------------- --------------
<S> <C> <C>
Balance at January 30, 1999 $ (64,000) $15,373,000
Net loss -- (1,718,000)
Foreign currency translation
adjustment 1,000 1,000
Stock warrants -- 503,000
Notes receivable payments
and write-offs -- 108,000
Common stock transactions:
Sales of common shares -- 40,000
Preferred stock transactions:
Sales of preferred shares -- 2,745,000
Preferred stock dividends -- (32,000)
----------- -----------
Balance at October 30, 1999 $(63,000) $17,020,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
SUCCESSORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------------
October 30, October 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,718,000) $(4,807,000)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,231,000 2,166,000
Amortization of debt discount 186,000 86,000
(Gain)/loss on sale of property and equipment -- (83,000)
----------- -----------
699,000 (2,638,000)
Changes in operating assets and liabilities:
Accounts and notes receivable (684,000) 2,978,000
Inventories 278,000 (3,367,000)
Prepaid catalog expenses (472,000) 183,000
Other prepaid expenses (506,000) (448,000)
Accounts payable (327,000) 3,890,000
Accrued expenses (7,000) 707,000
Minority interest (105,000) (304,000)
Other 17,000 89,000
----------- -----------
Net cash (used in) provided by operating activities (1,107,000) 1,090,000
----------- -----------
Cash flows from investing activities:
Proceeds from notes receivable issued in connection with
sale of property and equipment 59,000 45,000
Proceeds from sale of property and equipment 4,000 --
Purchases of property and equipment (498,000) (1,805,000)
----------- -----------
Net cash used in investing activities (435,000) (1,760,000)
----------- -----------
Cash flows from financing activities:
Proceeds from sales of common stock 40,000 31,000
Proceeds from sales of preferred stock 2,745,000 --
Proceeds from notes receivable issued to stockholders 58,000 --
Preferred stock dividends (32,000) --
Net (repayments) borrowings on revolving credit loan (446,000) 1,351,000
Repayments of long-term debt (1,441,000) (815,000)
----------- -----------
Net cash provided by financing activities 924,000 567,000
----------- -----------
Net decrease in cash (618,000) (103,000)
Cash and cash equivalents, beginning of period 1,615,000 1,751,000
----------- -----------
Cash and cash equivalents, end of period $ 997,000 $ 1,648,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
SUCCESSORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. DESCRIPTION OF THE BUSINESS
Successories, Inc. and its subsidiaries (collectively the "Company") design,
manufacture, and market proprietary and licensed products for business,
personal motivation and for golf enthusiasts. The Company considers itself a
single line of business with products that are marketed primarily under the
SUCCESSORIES, WINNERS Collection and BRITISH LINKS trade names through direct
marketing (catalog, electronic commerce and telemarketing), retail
(Company-owned stores) and wholesale distribution (including sales to
franchisees) channels. The Company operates a chain of Successories retail
stores located primarily in the United States. The Company also operates a
franchising program whereby it sells franchises to market the Company's
products under the SUCCESSORIES trademark.
NOTE 2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared,
without audit, in accordance with generally accepted accounting principles
for interim financial information and in conjunction with the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normal recurring
matters) considered necessary for a fair presentation have been included.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
The Company's fiscal year ends on the Saturday closest to January 31.
References to the three and nine months ended October 30, 1999, and October
31, 1998 refer to the thirteen and thirty-nine weeks ended on the dates
indicated.
The results of operations for the nine months ended October 30, 1999 are not
necessarily indicative of the results to be expected for the full year. These
financial statements should be read in conjunction with the Company's
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended January 30, 1999.
NOTE 3. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
October 30, January 30,
1999 1999
----------- -----------
<S> <C> <C>
Finished goods $ 7,539,000 $ 8,199,000
Raw materials 3,060,000 2,638,000
----------- -----------
10,599,000 10,837,000
Less: reserve for obsolescence (259,000) (219,000)
----------- -----------
$10,340,000 $10,618,000
----------- -----------
----------- -----------
</TABLE>
7
<PAGE>
NOTE 4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
October 30, January 30,
1999 1999
----------- -----------
<S> <C> <C>
Bank borrowings:
Term loan, net of debt discount of
$839,000 and $477,000 $ 4,076,000 $ 5,800,000
Revolving credit loan 4,427,000 4,874,000
Fixed rate loan, net of debt discount of
$215,000 and $260,000 285,000 240,000
Capital lease obligations 92,000 170,000
----------- -----------
8,880,000 11,084,000
Less: current portion (5,204,000) (6,035,000)
----------- -----------
Long-term debt $ 3,676,000 $ 5,049,000
----------- -----------
----------- -----------
</TABLE>
On June 20, 1997, the Company entered into a credit facility agreement with
The Provident Bank (the "Bank"). Per the agreement, as amended most recently
on April 28, 1999, the facility is comprised of a $7.5 million term loan and
a revolving credit loan. The revolving credit loan provides for maximum
borrowings of $9 million through May 1, 2000 and for each succeeding July 1
through December 31; the maximum borrowings at all other times is $6 million.
Borrowings under the revolving credit loan are limited to 85% of eligible
receivables plus 57% of eligible inventory, as defined, provided that from
February through April eligible inventory is limited to $5 million through
the year 2000 and $3 million in years thereafter. A commitment fee of 0.5% is
payable on the daily unused amount of the maximum revolving credit
commitment. The facility expires in June 2003, and borrowings under the
facility are secured by substantially all the assets of the Company. The
interest rates on the term loan and revolving credit loan borrowings
generally fluctuate based on the margin ratio, as defined, from a minimum of
prime plus 0.50% to a maximum of prime plus 3.00% on the term loan, and a
minimum of prime to a maximum of prime plus 3.00% on the revolving credit
loan. Interest is payable monthly. The interest rate on the term loan and
revolving credit loan was 11.25% at October 30, 1999. The term loan is
payable in quarterly installments of $125,000 through June 1, 1998, $312,500
from September 1, 1998 through June 1, 2000, and $375,000 thereafter.
Prepayments on the loans are required in certain cases including, among
others, equity offerings and asset dispositions. Further, the Company must
annually prepay the loans in an amount equal to 60% of excess cash flow, as
defined. As of October 30, 1999, available borrowings on the revolving credit
loan were $2,634,000. On June 20, 1997, warrants to purchase 150,000 shares
of the Company's common stock were issued to the Bank as part of this
agreement. Initially these warrants had exercise prices ranging from $6.19 to
$9.73 and expiration dates in June 2001; however, the exercise prices were
subsequently adjusted to $2.00 and the expiration dates were extended to June
2005.
In July 1997, the agreement for the credit facility was amended to include an
additional $500,000 fixed rate loan. The loan bears interest at 12% and is
due in June 2003. Warrants to purchase an additional 72,464 shares were
issued to the Bank in connection with this amendment and initially had an
exercise price of $6.90 and an expiration date of July 2003; however, the
exercise price was subsequently adjusted to $2.00 and the expiration date was
extended to July 2005.
On April 28, 1999, the agreement was amended to waive the earnings before
interest, taxes, depreciation and amortization ("EBITDA"), interest coverage
ratio, fixed charge coverage, debt to EBITDA ratio, and capital expenditure
limitation covenants for the year ended January 30, 1999, and adjust certain
other
8
<PAGE>
covenants prospectively. The amended agreement requires that (i) adjusted
EBITDA, as defined, which is based on a rolling four quarter period, may not
be less than a loss of $1,565,000 for the four quarters ended October 30,
1999, and increases each subsequent quarter to $6,800,000 for the four
quarters ended November 4, 2000; and for each quarter thereafter; (ii) the
interest coverage ratio, as defined, may not be less than 0.75 to 1.0 at
October 30, 1999, and increases each subsequent quarter to 5.0 to 1.0 for the
quarter ended April 29, 2000 and for each quarter thereafter; (iii) the fixed
charge coverage ratio, as defined, may not be less than 2.6 to 1.0 at January
29, 2000, and 1.5 to 1.0 thereafter; and (iv) the debt to EBITDA ratio, as
defined, may not be greater than 3.0 to 1.0 at January 29, 2000 and
thereafter. Also, in certain cases where prepayments on the loans are made in
connection with equity offerings, the amendment provides that certain
quarterly installments on the term loan will be deferred and the limits on
borrowings relating to eligible inventory under the revolving credit loan
will be increased.
As a result, pursuant to the terms of the Bank credit agreement, $2,745,000
of proceeds from the sale of convertible preferred stock by the Company in
the current year were used to make a prepayment on the next three quarterly
installments through December 1, 1999 on the term loan in the amount of
$1,000,000 and $1,745,000 was applied against the revolving credit loan.
Also, per the agreement the limitation on borrowings against eligible
inventory, as defined, under the Company's revolving credit loan was
increased from 50% to 57%. For further information on the sale of convertible
preferred stock by the Company, see Note 5.
In conjunction with the April 28, 1999 amendment, warrants to purchase an
additional 300,000 shares were issued to the Bank at an exercise price of
$2.50 that expire in 2005, the expiration dates of the 150,000 warrants
previously issued to the bank on June 20, 1997 were extended an additional
two years and the Company paid the bank a fee equal to 0.5% of the aggregate
commitments under the facility. The bank fee of $82,000 is included in
interest expense in the accompanying financial statements for the nine months
ended October 30, 1999.
The credit facility also contains other provisions, including limits on
capital expenditures and additional indebtedness, and restrictions on the
payment of dividends. At October 30, 1999, the Company was in compliance with
the debt covenant requirements of the credit facility agreement.
On May 14, 1998, the agreement was amended to waive the earnings before
interest, taxes, depreciation and amortization ("EBITDA") and interest
coverage ratio covenants for the year ended January 31, 1998, and adjust
certain other covenants. The amended agreement required that (i) EBITDA,
which is based on a rolling four quarter period, may not be less than $4
million for the four quarters ended May 2, 1998, and increases each
subsequent quarter to $6.8 million for the four quarters ended February 3,
2001 and each quarter thereafter and (ii) the interest coverage ratio, as
defined, not be less than 3.0 to 1.0 from May 2, 1998 through October 31,
1998, 4.0 to 1.0 at January 30, 1999, 4.5 to 1.0 at May 1, 1999 and July 31,
1999, and 5.0 to 1.0 thereafter. In addition, on September 1, 1998, the
agreement was again amended to waive the EBITDA covenant, the interest charge
coverage ratio and other related covenants for the second quarter of fiscal
1998 provided that EBITDA for the third quarter of fiscal 1998 was not less
than $1.6 million. On December 11, 1998, the Company obtained a waiver from
the bank for the EBITDA and interest coverage covenants for the third quarter
ended October 31, 1998.
In conjunction with the May 14, 1998 amendment, the exercise prices of the
warrants to purchase 222,464 shares of common stock previously issued to the
Bank were reduced to $5.85 and their expiration dates were extended for one
year. In conjunction with the September 1, 1998 amendment, the exercise
prices of these warrants were reduced to $3.00 and their expiration dates
were extended for another year. In
9
<PAGE>
conjunction with the waiver obtained on December 11, 1998, the exercise
prices of these warrants were reduced to $2.00.
The stock warrants issued in conjunction with the credit facility and certain
other financing transactions were assigned a fair value using the
Black-Scholes option pricing model. The fair value of the warrants have been
reflected as a discount on the debt and are being amortized as interest
expense over the terms of the related debt. Interest expense related to these
warrants amounted to $186,000 and $86,000 for the nine months ended October
30, 1999 and October 31, 1998, respectively.
The weighted average interest rates on borrowings outstanding as of October
30, 1999 and January 30, 1999 were 10.9% and 9.9%, respectively.
NOTE 5. PREFERRED STOCK
On May 28, 1999, the Company authorized and issued 503,092 shares of Series A
convertible preferred stock to a group of investors, pursuant to Regulation D
of the Securities Act of 1933. The Series A preferred stock has a par value
of $0.01 per share and a purchase price of $2.425 per share. On October 18,
1999, the Company authorized and issued 101,667 shares of Series B
convertible preferred stock to a group of investors, pursuant to regulation D
of the Securities Act of 1933. The Series B preferred stock has a par value
of $0.01 per share and a purchase price of $15 per share. The total proceeds
of $2,745,000 from the sale of Series A and Series B preferred stock is
comprised of $1,775,000 from related parties (see Note 12) and $970,000 from
outside investors. Dividends on the preferred stock accrue and are payable
quarterly in either cash or common stock, at the Company's discretion, at the
rate of 8% per annum, commencing on the date of issuance. Accrued and unpaid
dividends shall be paid on (1) April 30, July 31, October 31, and January 31
of each year commencing on July 31, 2000 for Series A preferred stock and
October 31, 2000 for Series B preferred stock, to the holders of record as
they appear on the books and records of the Company 10 days preceding each
payment date, and (2) the date certificates representing common stock of the
Company are required to be delivered following any conversion of Series A and
Series B convertible preferred stock. Holders of the preferred stock have the
right to convert their shares, in whole or in part, into the Company's common
stock. Initially, each share of preferred stock may be converted into one
share of common stock (the "conversion rate"). The conversion rate is subject
to adjustment. The above mentioned issuance of preferred stock also has
certain other rights including pre-emptive rights, voting rights, board
representation, registration rights, and liquidation preference. At any time
commencing one year after the date of issuance of the preferred stock, the
holders of a majority of the preferred stock may require the Company to file
a registration statement covering the conversion of preferred stock to common
stock.
NOTE 6. INCOME TAXES
Management believes that it is more likely than not that the net deferred tax
asset will be realized. Realization of the net deferred tax asset is largely
dependent upon the Company generating sufficient taxable income prior to the
expiration of the net operating loss carryforwards. However, the amount of
such realization could be reduced in the near term if estimates of future
taxable income during the carryforward period are changed. To the extent the
net operating loss carryforwards and existing deductible temporary
differences are not offset by the existing taxable temporary differences
reversing within the carryforward period, the remaining loss carryforwards
are expected to be realized by achieving future profitable operations. See
Note 10.
10
<PAGE>
NOTE 7. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures to the statements of cash flows are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
October 30, October 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash paid during the period for:
Income taxes $ 11,000 $ 26,000
Interest 1,155,000 889,000
Non-cash investing activities:
Notes receivable issued on sale of
property and equipment -- 452,000
</TABLE>
NOTE 8. LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- -----------------------
October 30, October 31, October 30, October 31,
1999 1998 1999 1998
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Basic and diluted loss per share:
Net loss $ (392,000) $ (1,473,000) $ (1,718,000) $ (4,807,000)
Preferred stock dividend (24,000) -- (32,000) --
---------- ------------ ------------ ------------
Loss available to common
stockholders $ (416,000) $ (1,473,000) $ (1,750,000) $ (4,807,000)
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Weighted-average shares 6,930,648 6,769,000 6,927,530 6,766,000
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Basic and diluted loss per share $ (.06) $ (.21) $ (.25) $ (.71)
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
</TABLE>
The diluted computations did not assume the exercise of stock options and
warrants due to their antidilutive effect on the loss per share.
NOTE 9. SEGMENT AND RELATED INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" as of January 30, 1999. This Statement
establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and in
interim financial reports issued to shareholders.
The Company's reportable segments are the various distribution channels used
to market its products. The Company's products have similar purposes and uses
in each channel of distribution, but profitability varies among the channels.
The Company considers itself a single line of business with products that are
marketed through direct marketing (catalog, electronic commerce and
telemarketing), retail (Company-owned stores), wholesale and franchise
channels. The Company has five reportable segments -- Direct
11
<PAGE>
Marketing -- Successories, Direct Marketing -- Golf, Retail Company-owned
stores, Wholesale and Sales to Franchisees.
The accounting policies of the reportable segments are the same as those
described in Note 2 of Notes to Consolidated Financial Statements in the
Company's 10-K. The Company evaluates the performance of its operating
segments based on income (loss) before other income (expense) and income
taxes.
Summarized financial information concerning the Company's reportable segments
is shown in the following table. The "Other" row includes corporate related
items not allocated to reportable segments.
<TABLE>
<CAPTION>
Net Segment Total Capital Depreciation
Sales Profit (Loss) Assets Expenditures and Amortization
----------- ------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED OCTOBER 30, 1999:
Direct Marketing Successories $ 6,426,000 $ 1,658,000 $ 4,443,000 $ -- $ 4,000
Direct Marketing Golf 246,000 2,000 722,000 -- --
Retail Company-owned stores 2,787,000 (252,000) 5,401,000 5,000 341,000
Wholesale 183,000 (286,000) 428,000 -- --
Sales to Franchisees 2,383,000 614,000 1,091,000 -- 4,000
Other -- (2,128,000) 21,861,000 120,000 641,000
------------ ----------- ------------ --------- -----------
CONSOLIDATED $ 12,025,000 $ (392,000) $ 33,946,000 $ 125,000 $ 990,000
- ------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED OCTOBER 31, 1998:
Direct Marketing Successories $ 5,548,000 $ 1,552,000 $ 4,417,000 $ -- $ --
Direct Marketing Golf 705,000 (271,000) 2,408,000 -- 7,000
Retail Company-owned stores 3,381,000 (560,000) 6,469,000 204,000 195,000
Wholesale 395,000 (310,000) 406,000 -- --
Sales to Franchisees 2,371,000 676,000 1,096,000 -- 5,000
Other -- (2,560,000) 25,917,000 358,000 590,000
------------ ----------- ------------ --------- -----------
CONSOLIDATED $ 12,400,000 $(1,473,000) $ 40,713,000 $ 562,000 $ 797,000
- ------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED OCTOBER 30, 1999:
Direct Marketing Successories $ 20,352,000 $ 3,866,000 $ 4,443,000 $ -- $ 14,000
Direct Marketing Golf 956,000 106,000 722,000 -- --
Retail Company-owned stores 8,955,000 (504,000) 5,401,000 120,000 727,000
Wholesale 775,000 (341,000) 428,000 -- --
Sales to Franchisees 4,652,000 1,123,000 1,091,000 -- 14,000
Other -- (5,968,000) 21,861,000 378,000 1,476,000
------------ ----------- ------------ --------- ----------
CONSOLIDATED $ 35,690,000 $(1,718,000) $ 33,946,000 $ 498,000 $ 2,231,000
- ------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED OCTOBER 31, 1998:
Direct Marketing Successories $ 18,297,000 $ 3,300,000 $ 4,417,000 $ -- $ --
Direct Marketing Golf 2,092,000 (792,000) 2,408,000 -- 22,000
Retail Company-owned stores 10,116,000 (1,215,000) 6,469,000 1,006,000 1,152,000
Wholesale 1,499,000 (105,000) 406,000 -- --
Sales to Franchisees 4,163,000 1,129,000 1,096,000 -- 14,000
Other -- (7,124,000) 25,917,000 799,000 978,000
------------ ----------- ------------ ---------- -----------
CONSOLIDATED $ 36,167,000 $ (4,807,000) $ 40,713,000 $1,805,000 $ 2,166,000
</TABLE>
The Company utilizes its facilities and the majority of its assets
interchangeably among each distribution channel. Assets that relate
specifically to a reportable segment have been included in the above table.
Assets identified to the reportable segments are primarily cash, receivables,
inventory, prepaid catalog expenses, property and equipment, and intangibles.
12
<PAGE>
The following table presents the details for "Other":
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -------------------------------
October 30, October 31, October 30, October 31,
1999 1998 1999 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Corporate expenses $ 1,035,000 $ 1,612,000 3,328,000 $ 5,153,000
Unallocated depreciation and
amortization expense 641,000 590,000 1,476,000 978,000
Other expenses 452,000 358,000 1,164,000 993,000
------------ ------------ ----------- -------------
$ 2,128,000 $ 2,560,000 $ 5,968,000 $ 7,124,000
------------ ------------ ----------- -------------
------------ ------------ ----------- -------------
</TABLE>
Corporate expenses are primarily charges for those functions not specifically
attributable to any specific segment; these functions include the product
development, merchandising, information systems, accounting, legal, human
resource and executive departments. Included in the expenses associated with
these functions are payroll and related costs, professional fees, information
system maintenance costs, office occupancy costs, and property and casualty
insurance.
The Company's operations are principally in the United States. Operations
outside of the United States are primarily in United Kingdom, Australia and
Europe. No single foreign country or geographic area is significant to the
consolidated operations. Foreign operations' net sales were $204,000 and
$499,000, respectively, for the nine months ended October 30, 1999 and
October 31, 1998. Long-lived assets are all located in the United States.
The Company's products include distinctive lines of wall decor, desktop art,
books and greeting cards, computer and audio products, personalized gifts and
awards, and mugs. In addition, the Company sells other motivational products
supplied by third parties. At October 30, 1999 and October 31, 1998, sales by
product categories comprised of approximately 48% and 49% wall decor, 19% and
18% desktop art, 18% and 17% books and greeting cards, 2% and 4% computer and
audio products, 12% and 11% personalized gifts and awards, and 1% and 1%
other products, respectively.
For the nine months ended October 30, 1999 and October 31, 1998, no single
customer or group under common control represented 10% or more of the
Company's sales.
NOTE 10: RISKS AND UNCERTAINTIES
ABSENCE OF OPERATING PROFITS
The Company has incurred a loss from operations in two of the past three
years, and has an accumulated deficit of $14,085,000 as of October 30, 1999.
While management does not expect to incur an operating loss in future years,
its ability to achieve profitability will depend on many factors, including
the Company's ability to develop, manufacture, and introduce and market
commercially acceptable products while controlling operating costs.
On September 3, 1998, the Company announced that it would focus its future
growth on its core motivational products business and its two most profitable
distribution channels: direct marketing of SUCCESSORIES products and
franchised retail stores. As a result, management developed plans, which are
13
<PAGE>
in progress as of October 30, 1999, to divest its golf catalog business, to
reduce the scope of its wholesale business, and to convert its Company-owned
retail stores to franchise owner-operators. As of October 30, 1999, the
Company has not yet sold the golf catalog business. The Company has hired a
consultant with experience in marketing franchises to assist with the
conversion of the Company-owned retail stores. Since September 3, 1998, the
Company has converted eight of its Company-owned retail stores to franchised
stores. In addition, the Company has reduced overhead expenses and management
expects to continue cost reductions.
The Company's operating results for the nine months ended October 30, 1999
showed an improvement compared to the nine months ended October 31, 1998. The
operating loss of $1,718,000 for the nine months ended October 30, 1999, was
a 64% improvement over the operating loss of $4,807,000 incurred for the nine
months ended October 31, 1998. The improvement in operating results can be
attributed to a reduction in selling, general and administrative expenses of
17% as compared to the same period in the prior year. It should be noted that
due to seasonality, the projection for the full year indicates a net profit.
However, there can be no assurance that the Company will achieve a profitable
level of operations in fiscal 1999 or that once profitability is achieved,
that it can be sustained.
FINANCING CONSIDERATIONS
Based on current projections, management believes that there will be
sufficient cash generated from operations and borrowings under its credit
facility to enable the Company to operate for the foreseeable future.
In 1999, the Company received $2,745,000 in proceeds from the sale of
convertible preferred stock. The proceeds from the equity offering will
provide additional working capital in the event the Company does not achieve
its projection. Pursuant to the terms of the bank credit agreement, the
proceeds were used to make a prepayment on the term loan and applied against
the revolving credit loan. For further information on the sale of convertible
preferred stock by the Company, see Note 5.
NOTE 11. COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
In May 1998, Wascher Corporation ("Wascher"), a franchisee of the Company,
filed a Demand for Arbitration dated May 26, 1998 with the American
Arbitration Association (Case No. 51-114-00227-98). Wascher alleges the
following causes of action against the Company: breach of contract, breach of
good faith and fair dealing, common law fraud, unfair competition,
Robinson-Patman Act violation, tortious interference with contract and
violation of the Wisconsin Fair Dealership Act. In support thereof, Wascher
alleges that the Company has not followed its agreement with Wascher or
observed reasonable commercial standards and good business practices. Wascher
alleges and seeks an award in an amount in excess of $250,000 plus costs,
disbursements and attorney's fees, an award of both treble and punitive
damages, and such other relief deemed just and equitable.
The hearing dates for Wascher were originally scheduled in January 1999. The
Company and Wascher have postponed the hearing and are involved in settlement
negotiations. If a settlement is not reached with Wascher, the Company
intends to vigorously defend itself against the claims. Given the phase of
this proceeding, the Company has determined that a reasonable assessment with
respect to the financial impact, if any, cannot be made at this point in time.
14
<PAGE>
Except as noted above, there are no other 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.
NOTE 12. RELATED PARTY TRANSACTIONS
In the current year, the Company received proceeds from the sale of
convertible preferred stock to the Company's Chairman of the Board of
Directors and an executive officer, in an aggregate amount of $1,775,000. For
further information on the sale of convertible preferred stock by the
Company, see Note 5.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
Successories, Inc. 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. The Company's 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
artwork and designs that can be used in conjunction with a wide variety of
products. The Company will also customize its products to fulfill customers'
special needs.
The Company's products are marketed primarily under its SUCCESSORIES and
WINNERS Collection trade names through direct marketing (catalog, electronic
commerce and telemarketing), retail (Company-owned stores) and wholesale
distribution (including sales to franchisees) channels. In October 1996, the
Company acquired the stock of British Links Golf Classics, Inc., a catalog
company selling golf-related gifts, art, wall decor and other collectibles.
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.
On September 3, 1998, the Company announced that it would focus its future
growth on its core motivational products business and its two most profitable
distribution channels: direct marketing of SUCCESSORIES products and
franchised retail stores. As a result, management developed plans, which are
in progress as of October 30, 1999, to divest its golf catalog business, to
reduce the scope of its wholesale business, and to convert its Company-owned
retail stores to franchise owner-operators. As of October 30, 1999, Company
has not yet sold the golf catalog business. The Company has hired a
consultant with experience in marketing franchises to assist with the
conversion of the Company-owned retail stores. To-date, the Company has
converted eight of its Company-owned retail stores to franchised stores. In
addition, the Company has reduced overhead expenses and management expects to
continue cost reductions.
For the three and nine months ended October 30, 1999 and October 31, 1998,
net product sales for the various distribution channels, as a percentage of
total net product sales, were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- -----------------------
October 30, October 31, October 30, October 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Direct marketing -- Successories 53.4% 44.7% 57.0% 50.6%
Direct marketing -- Golf 2.0% 5.7% 2.7% 5.8%
Retail Company-owned stores 23.2% 27.3% 25.1% 28.0%
Wholesale distribution 1.5% 3.2% 2.2% 4.1%
Sales to franchisees 19.8% 19.1% 13.0% 11.5%
</TABLE>
16
<PAGE>
The gross profit margins for Company-owned retail stores and direct marketing
- -- Successories are comparable. Direct marketing -- golf has a lower gross
profit margin in comparison to direct marketing -- Successories, due to a
higher percentage of non-proprietary products being sold in the direct
marketing -- golf channel. The gross profit margin for wholesale distribution
sales and sales to franchisees is lower than the other channels since these
sales are generally made at a significant discount from retail price.
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 30, 1999, COMPARED TO THREE MONTHS ENDED OCTOBER
31, 1998
Net product sales were $12,025,000 for the three months ended October 30,
1999, compared to $12,400,000 for the corresponding three months ended
October 31, 1998. The $375,000 or 3%, decrease in sales was comprised of a
decrease in direct marketing-golf sales of $459,000 or 65.1%, retail
Company-owned store sales of $594,000 or 17.6%, and wholesale sales of
$212,000 or 53.7%, offset by an increase in direct marketing-Successories
sales of $878,000 or 15.8%, and franchise sales of $12,000 or 0.5%.
The 15.8% increase in direct marketing-Successories sales was attributable to
planned increases in circulation of SUCCESSORIES catalogs. Sales to
franchisees were approximately equal to the prior year for the quarter but on
a year-to-date basis increased by 11.7%, which was due to a planned shift in
the current year of franchise holiday orders to the next quarter to enable
the Company and its franchisees to better control inventory levels and be
more responsive to customer demand. The 65.1% decrease in direct
marketing-golf sales was due to planned reductions in circulation of the
Company's golf catalogs. Retail Company-owned store sales decreased by 17.6%
due to fewer stores in operation in the current year and decrease in
same-store sales of 2.1% as compared to the same quarter in the prior year.
There were 31 Company-owned and operated retail stores at October 30, 1999 as
compared to 40 stores at October 31, 1998. The decrease in wholesale sales of
53.7% was due to a planned reduction in the Company's wholesale business.
Gross margin, as a percent of net product sales, was 55.0% for the three
months ended October 30, 1999, compared to 56.2% for the corresponding three
months ended October 31, 1998. The decrease in gross margin is primarily due
to a decrease in royalty income.
Operating expenses decreased for the three months ended October 30, 1999 to
$6,556,000 from $8,089,000 for the three months ended October 31, 1998. The
19.0% decrease in current year operating expenses can be attributed to
planned reductions, offset by additional expenses in the current year.
Operating expenses for the current year include additional charges of
$451,000 related to retail store closings and the Company's exiting its
wholesale activity with office supply companies. Prior year's operating
expenses included $1,108,000 in additional costs associated with reducing
headquarters overhead, increasing specific bad debt reserves, and retail
store related expenses. Excluding these additional expenses in the current
and prior year, operating expenses decreased in the current year by $876,000,
which can be attributed to a decrease in the Company's investment in its golf
catalog business, and reduction in corporate and administrative expenses as a
result of focusing on the two core channels; direct marketing of SUCCESSORIES
products and sales to franchise owner-operators.
Interest expense was $419,000 for the three months ended October 30, 1999,
compared to $380,000 for the three months ended October 31, 1998. Included in
interest expense is the amortization of the debt
17
<PAGE>
discount which is a non-cash expense. This non-cash interest amounted to
$72,000 and $27,000 for the three months ended October 30, 1999 and October
31, 1998, respectively.
The net loss of $392,000 for the three months ended October 30, 1999 was less
than the net loss of $1,473,000 for the three months ended October 31, 1998,
primarily due to a decrease in operating expenses. As a percentage of net
product sales, the net loss decreased to 3.3% for the three months ended
October 30, 1999, as compared to a net loss of 11.9% for the three months
ended October 31, 1998.
NINE MONTHS ENDED OCTOBER 30, 1999, COMPARED TO NINE MONTHS ENDED OCTOBER 31,
1998
Net product sales were $35,690,000 for the nine months ended October 30,
1999, compared to $36,167,000 for the corresponding nine months ended October
31, 1998. The $477,000 or 1.3%, decrease in sales is comprised of a decrease
in direct marketing -- golf sales of $1,136,000 or 54.3%, retail
Company-owned store sales of $1,161,000 or 11.5%, and wholesale sales of
$724,000 or 48.3%, offset by an increase in direct marketing -- Successories
sales of $2,055,000 or 11.2%, and franchise sales of $489,000 or 11.7%.
The 11.2% increase in direct marketing -- Successories sales was attributable
to planned increases in circulation of SUCCESSORIES catalogs. The 11.7%
increase in franchise sales was due to new products and higher sales volume.
The 54.3% decrease in direct marketing -- golf sales was due to planned
reductions in circulation of the Company's golf catalogs. Retail
Company-owned store sales decreased by 11.5% due to fewer stores in operation
in the current year, offset by an increase in same-store sales of 1.7% as
compared to the same prior year nine months ended October 31, 1998. There
were 31 Company-owned and operated retail stores at October 30, 1999 as
compared to 40 stores at October 31, 1998.
Gross margin, as a percent of net product sales, was 56.6% for the nine
months ended October 30, 1999, compared to 58.3% for the corresponding nine
months ended October 31, 1998. The decrease in gross margin is primarily due
to a decrease in franchise fee and royalty income. In the prior year,
franchise fee income was recognized from the conversion of Company-owned
retail stores to franchised stores.
Operating expenses decreased for the nine months ended October 30, 1999 to
$20,767,000 from $24,894,000 for the nine months ended October 31, 1998. The
16.6% decrease in current year operating expenses can be attributed to a
decrease in the Company's investment in its golf catalog business, exiting
the European expansion, and reduction in corporate and administrative
expenses as a result of focusing on the two core channels; direct marketing
of SUCCESSORIES products and sales to franchise owner-operators, offset by
additional charges related to retail store closings and the Company's exiting
its wholesale activity with office supply companies.
Interest expense was $1,115,000 for the nine months ended October 30, 1999,
compared to $1,051,000 for the nine months ended October 31, 1998. The
current year interest expense includes a bank amendment fee of $82,000.
Included in interest expense is the amortization of the debt discount which
is a non-cash expense. This non-cash interest amounted to $186,000 and
$86,000 for the nine months ended October 30, 1999 and October 31, 1998,
respectively.
The net loss of $1,718,000 for the nine months ended October 30, 1999 was
less than the net loss of $4,807,000 for the nine months ended October 31,
1998, primarily due to a decrease in operating expenses. As a percentage of
net product sales, the net loss decreased to 4.8% for the nine months ended
October 30, 1999, as compared to a net loss of 13.3% for the nine months
ended October 31, 1998.
18
<PAGE>
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 its operations, supplemented by borrowings available on the revolving
credit loan, to fund its cash requirements. Any additional equity obtained
would provide additional working capital in the event the Company does not
achieve its projection.
Operating activities used cash of $1,107,000 for the nine months ended
October 30, 1999, compared to cash provided of $1,090,000 for the nine months
ended October 31, 1998. The change in cash flows from operating activities
can be primarily attributable to an increase in prepaid catalog expenses and
the change in accounts receivable and payable, offset by a decrease in the
net loss and inventory. The decrease in inventory and accounts payable can be
attributed to management's planned efforts to reduce inventory. The decrease
in accounts receivable can be attributed to improved collections.
Investing activities used cash of $435,000 for the nine months ended October
30, 1999, compared to $1,760,000 for the nine months ended October 31, 1998.
Capital expenditures were the principal use of cash. During the nine months
ended October 30, 1999, the Company expended funds primarily for computer
equipment related to addressing Year 2000 compliance. In the prior year nine
months ended October 31, 1998, the Company expended funds primarily for the
new point-of-sale computer systems, and furniture and fixtures for its
Company-owned retail stores. The Company's current credit facility limits
capital expenditures to $1 million for each fiscal year. The Company expects
to incur approximately $300,000 in related capital expenditures to address
Year 2000 computer systems compliance in fiscal 1999.
Financing activities provided cash of $924,000 for the nine months ended
October 30, 1999, compared to cash provided of $567,000 for the nine months
ended October 31, 1998. Scheduled debt repayments on term notes and capital
leases, and net repayments on the revolving credit loan were the principal
uses of cash. In the current year, the Company received $2,745,000 in
proceeds from the sale of convertible preferred stock. Pursuant to the terms
of the bank credit agreement, $2,745,000 of proceeds from the sale of
preferred stock were used to make a prepayment on the term loan in the amount
of $1,000,000 and $1,745,000 was applied against the revolving credit loan.
On June 20, 1997, the Company entered into a credit facility agreement with
the Provident Bank (the "Bank"). Per the agreement, as amended most recently
on April 28, 1999, the facility is comprised of a $7.5 million term loan and
a revolving credit loan. The revolving credit loan provides for maximum
borrowings of $9 million through May 1, 2000 and for each succeeding July 1
through December 31; the maximum borrowings at all other times is $6 million.
Borrowings under the revolving credit loan are limited to 85% of eligible
receivables plus 57% of eligible inventory, as defined, provided that from
February through April eligible inventory is limited to $5 million through
the year 2000 and $3 million in years thereafter. A commitment fee of 0.5% is
payable on the daily unused amount of the maximum revolving credit
commitment. The facility expires in June 2003, and borrowings under the
facility are secured by substantially all the assets of the Company. The
interest rates on the term loan and revolving credit loan borrowings
generally fluctuate based on the margin ratio, as defined, from a minimum of
prime plus 0.50% to a maximum of prime plus 3.00% on the term loan, and a
minimum of prime to a maximum of prime plus 3.00% on the revolving credit
loan. Interest is payable monthly. The interest rate on the term loan and
revolving credit loan was 11.25% at October 30, 1999. The term loan is
payable in quarterly installments of $125,000 through June 1, 1998, $312,500
from September 1, 1998 through June 1, 2000, and $375,000 thereafter.
Prepayments on the loans are required in certain cases including, among
others, equity offerings and asset dispositions. Further, the Company must
annually prepay the
19
<PAGE>
loans in an amount equal to 60% of excess cash flow, as defined. On June 20,
1997, warrants to purchase 150,000 shares of the Company's common stock were
issued to the Bank as part of this agreement. Initially these warrants had
exercise prices ranging from $6.19 to $9.73 and expiration dates in June
2001; however, the exercise prices were subsequently adjusted to $2.00 and
the expiration dates were extended to June 2005.
In July 1997, the agreement for the credit facility was amended to include an
additional $500,000 fixed rate loan. The loan bears interest at 12% and is
due in June 2003. Warrants to purchase an additional 72,464 shares were
issued to the Bank in connection with this amendment and initially had an
exercise price of $6.90 and an expiration date of July 2003; however, the
exercise price was subsequently adjusted to $2.00 and the expiration date was
extended to July 2005.
On April 28, 1999, the agreement was amended to waive the earnings before
interest, taxes, depreciation and amortization ("EBITDA"), interest coverage
ratio, fixed charge coverage, debt to EBITDA ratio, and capital expenditure
limitation covenants for the year ended January 30, 1999, and adjust certain
other covenants prospectively. The amended agreement requires that (i)
adjusted EBITDA, as defined, which is based on a rolling four quarter period,
may not be less than a loss of $1,565,000 for the four quarters ended May 1,
1999, and increases each subsequent quarter to $6,800,000 for the four
quarters ended November 4, 2000 and for each quarter thereafter; (ii) the
interest coverage ratio, as defined, may not be less than 0.75 to 1.0 at
October 30, 1999, and increases each subsequent quarter to 5.0 to 1.0 for the
quarter ended April 29, 2000 and for each quarter thereafter; (iii) the fixed
charge coverage ratio, as defined, may not be less than 2.6 to 1.0 at January
29, 2000, and 1.5 to 1.0 thereafter; and (iv) the debt to EBITDA ratio, as
defined, may not be greater than 3.0 to 1.0 at January 29, 2000 and
thereafter. Also, in certain cases where prepayments on the loans are made in
connection with equity offerings, the amendment provides that certain
quarterly installments on the term loan will be deferred and the limits on
borrowings relating to eligible inventory under the revolving credit loan
will be increased.
In conjunction with the April 28, 1999 amendment, warrants to purchase an
additional 300,000 shares were issued to the Bank at an exercise price of
$2.50 that expire in 2005, the expiration dates of the 150,000 warrants
previously issued to the Bank on June 20, 1997 were extended an additional
two years to June 2005, and the Company paid the bank a fee equal to 0.5% of
the aggregate commitments under the facility. The bank fee of $82,000 is
included in interest expense in the accompanying financial statements for the
nine months ended October 30, 1999.
The credit facility also contains other provisions, including limits on
capital expenditures and additional indebtedness, and restrictions on the
payment of dividends. At October 30, 1999, the Company was in compliance with
the debt covenant requirements of the credit facility agreement.
As of October 30, 1999, available borrowings on the revolving credit loan
were $2,634,000. The Company believes that internally generated funds and the
credit facility will be sufficient to meet its current operating needs, fund
debt service and make anticipated capital expenditures.
20
<PAGE>
YEAR 2000 COMPLIANCE
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify years. As a result, such systems will
recognize the year 2000 as "00." This could cause many computer applications
to fail completely or to create erroneous results unless corrective measures
are taken. The Company has conducted a review of its information technology
("IT") to identify those areas that could be affected by the Year 2000 issue.
The Company has developed a comprehensive risk-based plan. The plan addresses
IT and non-IT systems and products, as well as dependencies on those with
whom the Company does significant business.
The following table reflects the methodology and the completion status of
each phase as it applies to the key IT and non-IT systems and products:
<TABLE>
<CAPTION>
PREPARATION SURVEYING PLANNING IMPLEMENTATION
----------- --------- -------- --------------
<S> <C> <C> <C> <C>
FINANCIAL AND INVENTORY
SYSTEMS Complete Complete Complete Complete
ORDER ENTRY AND
FULFILLMENT Complete Complete Complete Complete
TELECOMMUNICATIONS Complete Complete Complete Complete
LAN/WAN Complete Complete Complete Complete
ANCILLARY SOFTWARE Complete Complete Complete To be completed in
December 1999
PC SOFTWARE
(NON-FINANCIAL) Complete Complete Complete To be completed in
December 1999
MANUFACTURING
EQUIPMENT Complete Complete Complete Complete
THIRD PARTY VENDORS Complete Complete Complete To be completed in
December 1999
</TABLE>
The new order entry, inventory control, manufacturing, fulfillment, financial
and point-of-sale systems are all Year 2000 compatible.
The Company presently believes, with the modifications made to existing
software, the Year 2000 problem will not pose significant operational risk.
The Company presently is unable to assess the likelihood that it will
experience operational problems due to unresolved Year 2000 problems of third
parties with whom it does business. The Company cannot assure that other
entities will achieve timely Year 2000 compliance; and if they do not, Year
2000 problems could have an adverse effect on the operations. Where
commercially reasonable to do so, the Company intends to assess risks with
respect to failure by third parties to be Year 2000 compliant and to seek to
mitigate those risks. While the Company cannot accurately predict a "worst
case scenario" with regard to its Year 2000 issues, the failure by the
Company and/or vendors to complete Year 2000 compliance work in a timely
manner could have a materially adverse effect on the Company's operations.
The Company believes that the most reasonably likely worst-case scenarios
that it might confront with respect to Year 2000 issues have to do with third
parties not being Year 2000 compliant. The Company has assessed these risks
and uncertainties and will be updating its contingency plans and procedures
through December 1999. The cost of addressing potential Year 2000 problems
are not currently expected to have a material impact on the Company's
consolidated financial position or results of operations. To-
21
<PAGE>
date, the Company has expensed approximately $175,000 related to Year 2000
compliance. The Company expects to incur approximately $300,000 in total.
SEASONALITY
The Company generally experiences peak sales in the fourth quarter of its
fiscal year (November through January) due to the holiday season. The effects
of seasonality are greater in the Company's retail operations than in its
direct marketing operations. Most operating expenses are incurred evenly
throughout the year, although some selling and administrative expenses are
variable with sales, and direct marketing catalog advertising expenses as a
percentage of sales are higher in the first calendar quarter. The Company's
quarterly operating results may also vary depending upon such factors as the
opening of new stores, converting Company-owned to franchise stores, new
catalog mailings, the timing of new product introductions and promotions by
the Company. The Company's cash requirements generally reach a seasonal peak
in the fall to finance increased inventory levels needed to meet third and
fourth quarter sales demand.
INFLATION
The Company does not believe that inflation has had a material impact on its
operations.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements which the Company believes
are within the meaning of Section 27A of the Securities Act and Section 21E
of the Exchange Act. Such forward-looking statements may be deemed to
include, among other things, statements relating to anticipated financial
performance, the management team, management's long-term performance goals,
plans to divest the Company's golf catalog business and convert retail
locations to franchised stores, programs to reduce the Company's costs and
enhance asset utilization, efficiencies realized from new systems, the
Company's generation of funds sufficient to meet its current operating needs
and to fund anticipated capital expenditures, realization of deferred tax
assets, costs associated with potential year 2000 problems, as well as
statements relating to the Company's operational and growth strategies.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be accurate, and actual results could differ
materially from those addressed in forward-looking statements contained in
this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk associated with adverse changes in
interest rate and foreign currency exchange rates, but does not hold any
market risk sensitive instruments for trading purposes. The Company uses both
fixed and variable rate debt, as described in Note 4 of the Notes to
Consolidated Financial Statements. Principal exposed to interest rate risk is
limited to $9,842,000 in variable rate debt. The Company's exposure to
foreign currency exchange rate risk relates primarily to the financial
position and results of operations in Canada and United Kingdom. The
Company's exposure to foreign currency exchange rate risk is difficult to
estimate due to factors such as balance sheet accounts, and the existing
economic uncertainty and future economic conditions in the international
marketplace.
22
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1998, Wascher Corporation ("Wascher"), a franchisee of the Company,
filed a Demand for Arbitration dated May 26, 1998 with the American
Arbitration Association (Case No. 51-114-00227-98). Wascher alleges the
following causes of action against the Company: breach of contract, breach of
good faith and fair dealing, common law fraud, unfair competition,
Robinson-Patman Act violation, tortious interference with contract and
violation of the Wisconsin Fair Dealership Act. In support thereof, Wascher
alleges that the Company has not followed its agreement with Wascher or
observed reasonable commercial standards and good business practices. Wascher
alleges and seeks an award in an amount in excess of $250,000 plus costs,
disbursements and attorney's fees, an award of both treble and punitive
damages, and such other relief deemed just and equitable.
The hearing dates for Wascher were originally scheduled in January 1999. The
Company and Wascher have postponed the hearing and are involved in settlement
negotiations. If a settlement is not reached with Wascher, the Company
intends to vigorously defend itself against the claims. Given the phase of
this proceeding, the Company has determined that a reasonable assessment with
respect to the financial impact, if any, cannot be made at this point in time.
Except as noted above, there are no other 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 2. CHANGES IN SECURITIES
On October 18, 1999, the Company authorized and issued 101,667 shares of
Series B convertible preferred stock, at an aggregate offering price of
$1,525,000, to a group of accredited investors. The Series B preferred stock
has a par value of $0.01 per share and a purchase price of $15 per share. The
Company received $1,525,000 in cash proceeds from the sale of preferred
stock. Exemption from registration of the securities was claimed under
Regulation D of the Securities Act of 1933, as amended, based on who the
investors were, the number of investors and the aggregate offering price.
Holders of the preferred stock have the right to convert their shares, in
whole or in part, into the Company's common stock (the "conversion rate") at
an initial conversion price of $2.3625 per share. The conversion rate is
subject to adjustment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Index to Exhibits immediately following the Signatures page.
(b) No reports on Form 8-K have been filed for the three months ended
October 30, 1999.
23
<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: December 9, 1999 By: /s/ Gary J. Rovansek
-----------------------------
Gary J. Rovansek
President, Chief Operating
Officer, Chief Executive Officer
and Director
Date: December 9, 1999 By: /s/ Steven D. Kuptsis
-----------------------------
Steven D. Kuptsis
Senior Vice President,
Administration and Chief
Financial Officer (Principal
Financial and Accounting
Officer)
24
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<C> <S>
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 By-laws of Registrant (18)
3.4 Amended and Restate Certificate of Designation of Series A
and Series B Convertible Preferred Stock (19)
4.1 Specimen Common Stock Certificate (18)
4.2 Specimen Series A Convertible Preferred Stock Certificate
(filed herewith)
4.3 Specimen Series B Convertible Preferred Stock Certificate
(filed herewith)
10.1 Form of Franchising Agreement (18)
10.2 Stock Option Instrument for Arnold M. Anderson dated
November 19, 1991 (1)
10.3 Celex Group, Inc. Stock Option Plan (1)
10.4 Joint Venture Agreement with Morrison DFW, Inc. and related
documents (4)
10.5 Indemnification Agreement dated April 7, 1999 between the
Company and Arnold M. Anderson (17)
Indemnification Agreements in the form filed were also
entered into by the Messrs, Seamas T. Coyle, Timothy C.
Dillon, C. Joseph LaBonte, Steven B. Larrick, Michael H.
McKee, Mervyn C. Phillips, Jr., Guy E. Snyder, Gary
Rovansek, Scott R. Morrison, Jr., and Jack Miller
10.6 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)
10.7 Common Stock Option Agreement granted to Arnold M. Anderson
and Incentive Stock Option Agreement granted to Arnold M.
Anderson (9)
10.8 Employment Agreement with Arnold M. Anderson dated March 1,
1996 (10)
10.9 Employment Agreement with Michael H. McKee dated June 1,
1999 (18)
</TABLE>
25
<PAGE>
<TABLE>
<C> <S>
10.10 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)
10.11 Credit Agreement between the Company and The Provident Bank
dated as of June 20, 1997 (13)
10.12 First Amendment to Credit Agreement between the Company and
The Provident Bank dated as of July 16, 1997 (13)
10.13 Lease Agreement between LaSalle National Trust, N.A. as
Trustee under Trust No. 120358 and Celex, Group, Inc. (14)
10.14 Second Amendment to Credit Agreement between the Company and
the Provident Bank dated as of May 14, 1998 (14)
10.15 Third Amendment to Credit Agreement between the Company and
the Provident Bank dated as of September 1, 1998 (15)
10.16 Employment Agreement with Gary Rovansek dated October 29,
1998 (15)
10.17 Fourth Amendment to Credit Agreement between the Company and
the Provident Bank dated as of April 28, 1999 (17)
10.18 Warrants to Purchase Common Stock of the Company granted to
Provident Bank and dated as of April 29, 1999 (17)
10.19 Preferred Stock Purchase Agreement dated as of May 28, 1999
by and among the Company and the investors (16)
10.20 Registration Rights Agreement dated as of May 28, 1999 by
and among the Company and the investors (16)
10.21 Preferred Stock Purchase Agreement dated as of October 18,
1999 by and among the Company and the investors (19)
10.22 Registration Rights Agreement dated as of October 18, 1999
by and among the Company and the investors (19)
21.1 Subsidiaries (4)
27.1 Financial Data Schedule (filed herewith)
</TABLE>
- ----------------------------------
(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 Registration Statement of Form S-3, No. 333-19313,
and incorporated herein by reference.
26
<PAGE>
(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.
(13) Previously filed with the Company's Form 10-Q for the quarter ended
August 2, 1997, and incorporated herein by reference.
(14) Previously filed with the Company's Form 10-Q for the quarter ended May
2, 1998, and incorporated herein by reference.
(15) Previously filed with the Company's Form 10-Q for the quarter ended
October 31, 1998, and incorporated herein by reference.
(16) Previously filed with the Company's Form 8-K on June 10, 1999, reporting
date of event June 7, 1999, and incorporated herein by reference.
(17) Previously filed with the Company's Form 10-Q for the quarter ended May
1, 1999, and incorporated herein by reference.
(18) Previously filed with the Company's Form 10-Q for the quarter ended July
31, 1999, and incorporated herein by reference.
(19) Filed with the Company's Form 8-K on November 4, 1999, reporting date of
event October 18, 1999, and incorporated herein by reference.
27
<PAGE>
Exhibit 4-2
SEE REVERSE SIDE FOR RESTRICTIONS ON THE TRANSFER OF THESE SHARES
NUMBER SHARES
A-1 412,371
ORGANIZED UNDER THE LAWS OF THE STATE OF ILLINOIS
SUCCESSORIES, INC.
Series A Convertible Preferred Stock
This Certifies that JACK MILLER FAMILY LIMITED PARTNERSHIP #1 IS THE
---------------------------------------------
OWNER OF 412,371 ______________________________ FULL PAID AND NON-ASSESSABLE
PREFERRED SHARES $.01 PAR VALUE, OF SUCCESSORIES, INC. TRANSFERABLE
-------- ----------------------
ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY
DULY AUTHORIZED ATTORNEY UPON THE SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED.
A STATEMENT, IN FULL, OF ALL THE DESIGNATIONS, PREFERENCES,
QUALIFICATIONS, LIMITATIONS, RESTRICTIONS, AND SPECIAL OR RELATIVE RIGHTS OF
THE SHARES OF EACH CLASS AUTHORIZED TO BE ISSUED, WILL BE FURNISHED BY THE
CORPORATION TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND TO BE SEALED WITH THE SEAL OF THE
CORPORATION, THIS 28TH DAY OF MAY, A.D. 1999.
--------- ------------ -------
- ------------------------------- ---------------------------
Gregory J. Nowak Secretary Gary Rovansek President
<PAGE>
FOR VALUE RECEIVED, _____ HEREBY SELL, ASSIGN AND TRANSFER
UNTO _______________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
___________________________________________ATTORNEY
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN
NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN
THE PREMISES.
DATED ____________________19 ______
IN PRESENCE OF
_______________________ _____________________
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF REGISTRATION THEREUNDER OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE
WITH ANY APPLICABLE UNITED STATES STATE SECURITIES LAWS.
<PAGE>
Exhibit 4-3
NUMBER SHARES
B-1 50,000
ORGANIZED UNDER THE LAWS OF THE STATE OF ILLINOIS
SUCCESSORIES, INC.
Series B Convertible Preferred Stock
This Certifies that JACK MILLER FAMILY LIMITED PARTNERSHIP #1 IS THE
---------------------------------------------
OWNER OF 50,000 _____________________________ FULL PAID AND NON-ASSESSABLE
PREFERRED SHARES $.01 PAR VALUE, OF SUCCESSORIES, INC. TRANSFERABLE
-------- ----------------------
ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY
DULY AUTHORIZED ATTORNEY UPON THE SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED.
A STATEMENT, IN FULL, OF ALL THE DESIGNATIONS, PREFERENCES,
QUALIFICATIONS, LIMITATIONS, RESTRICTIONS, AND SPECIAL OR RELATIVE RIGHTS OF
THE SHARES OF EACH CLASS AUTHORIZED TO BE ISSUED, WILL BE FURNISHED BY THE
CORPORATION TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND TO BE SEALED WITH THE SEAL OF THE
CORPORATION, THIS 18TH DAY OF OCTOBER, A.D. 1999.
--------- ------------ -------
- ------------------------------- ---------------------------
Gregory J. Nowak Secretary Gary Rovansek President
<PAGE>
FOR VALUE RECEIVED, _____ HEREBY SELL, ASSIGN AND TRANSFER
UNTO _______________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
___________________________________________ATTORNEY
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN
NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN
THE PREMISES.
DATED ____________________19 ______
IN PRESENCE OF
_______________________ _____________________
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF REGISTRATION THEREUNDER OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE
WITH ANY APPLICABLE UNITED STATES STATE SECURITIES LAWS.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> OCT-30-1999
<CASH> 997,000
<SECURITIES> 0
<RECEIVABLES> 5,093,000
<ALLOWANCES> 597,000
<INVENTORY> 10,340,000
<CURRENT-ASSETS> 18,575,000
<PP&E> 19,543,000
<DEPRECIATION> 10,972,000
<TOTAL-ASSETS> 33,946,000
<CURRENT-LIABILITIES> 13,250,000
<BONDS> 0
0
6,000
<COMMON> 69,000
<OTHER-SE> 16,945,000
<TOTAL-LIABILITY-AND-EQUITY> 33,946,000
<SALES> 35,690,000
<TOTAL-REVENUES> 36,357,000
<CGS> 16,144,000
<TOTAL-COSTS> 20,767,000
<OTHER-EXPENSES> 49,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,115,000
<INCOME-PRETAX> (1,718,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,718,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,718,000)
<EPS-BASIC> (.25)
<EPS-DILUTED> (.25)
</TABLE>
