<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 JULY 29, 2000
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 7,018,074 shares of common stock, $.01 par value,
outstanding as of August 31, 2000.
================================================================================
<PAGE>
SUCCESSORIES, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page Number
<S> <C>
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.................... 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk................................................ 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 20
Item 4. Submission of Matters to a Vote of Security Holders.............. 20
Item 5. Other Information................................................ 21
Item 6. Exhibits and Reports on Form 8-K................................. 21
SIGNATURES ................................................................. 22
INDEX TO EXHIBITS
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
SUCCESSORIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
July 29, January 29,
2000 2000
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 923,000 $ 1,239,000
Accounts and notes receivable, net of allowance
of $579,000 and $549,000, respectively 3,198,000 3,430,000
Inventories, net 7,852,000 7,998,000
Prepaid catalog expenses 1,120,000 1,539,000
Other prepaid expenses 330,000 130,000
------------ ------------
Total current assets 13,423,000 14,336,000
Property and equipment, net 6,972,000 7,933,000
Notes receivable 208,000 295,000
Deferred financing costs, net 259,000 303,000
Deferred income taxes 5,199,000 5,199,000
Intangibles and other assets, net 1,707,000 1,683,000
------------ ------------
TOTAL ASSETS $ 27,768,000 $ 29,749,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,563,000 $ 3,250,000
Accounts payable 2,831,000 3,789,000
Accrued expenses 2,130,000 1,746,000
------------ ------------
Total current liabilities 8,524,000 8,785,000
Long-term debt, net of current portion 2,370,000 3,374,000
------------ ------------
Total liabilities 10,894,000 12,159,000
------------ ------------
Minority interest in subsidiaries -- 47,000
------------ ------------
Stockholders' equity:
Convertible preferred stock, $.01 par value; 1,000,000
shares authorized; 503,092 of Series A and 101,667 of
Series B shares issued and outstanding 6,000 6,000
Common stock, $.01 par value; 20,000,000 shares
authorized; 6,954,020 and 6,933,213 shares issued and
outstanding, respectively 69,000 69,000
Common stock warrants 2,324,000 2,291,000
Notes receivable from stockholders (165,000) (165,000)
Additional paid-in capital 29,005,000 28,969,000
Accumulated deficit (14,306,000) (13,563,000)
Accumulated other comprehensive loss (59,000) (64,000)
------------ ------------
Total stockholders' equity 16,874,000 17,543,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,768,000 $ 29,749,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
SUCCESSORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------- ------------------------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
--------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Net product sales $ 11,480,000 $ 11,609,000 $ 23,799,000 $ 23,665,000
Cost of goods sold 5,005,000 5,190,000 10,362,000 10,452,000
------------ ------------ ------------ ------------
Gross profit on product sales 6,475,000 6,419,000 13,437,000 13,213,000
Contract framing, net income 218,000 -- 218,000 --
Fees, royalties and other income 275,000 229,000 490,000 384,000
------------ ------------ ------------ ------------
Gross margin 6,968,000 6,648,000 14,145,000 13,597,000
Operating expenses 6,896,000 7,087,000 14,105,000 14,211,000
------------ ------------ ------------ ------------
Income (loss) from operations 72,000 (439,000) 40,000 (614,000)
------------ ------------ ------------ ------------
Other income (expense):
Interest expense (274,000) (333,000) (558,000) (696,000)
Minority interests in subsidiaries (62,000) (34,000) (110,000) (64,000)
Interest income 7,000 19,000 12,000 28,000
Other, net (15,000) 18,000 (17,000) 20,000
------------ ------------ ------------ ------------
Total other expense (344,000) (330,000) (673,000) (712,000)
------------ ------------ ------------ ------------
Loss before income tax (272,000) (769,000) (633,000) (1,326,000)
Income tax -- -- -- --
------------ ------------ ------------ ------------
Net loss (272,000) (769,000) (633,000) (1,326,000)
------------ ------------ ------------ ------------
Dividend to preferred shareholder 55,000 8,000 110,000 8,000
------------ ------------ ------------ ------------
Loss available to common stockholders $ (327,000) $ (777,000) $ (743,000) $ (1,334,000)
============ ============ ============ ============
Foreign currency translation adjustment $ 4,000 $ -- $ 5,000 $ --
============ ============ ============ ============
Comprehensive loss $ (268,000) $ (769,000) $ (628,000) $ (1,326,000)
============ ============ ============ ============
Loss per share:
Basic and diluted $ (0.05) $ (0 .11) $ (0.11) $ (0 .19)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
SUCCESSORIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Notes
Preferred Stock Common 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 29, 2000 604,759 $6,000 6,933,213 $69,000 $2,291,000 $(165,000) $28,969,000 $(13,563,000)
Net loss -- -- -- -- -- -- -- (633,000)
Foreign currency translation
adjustment -- -- -- -- -- -- -- --
Stock warrants revaluation -- -- -- -- 33,000 -- -- --
Common stock transactions:
Sales of common shares -- -- 20,807 -- -- -- 36,000 --
Preferred stock transactions:
Preferred stock dividends -- -- -- -- -- -- -- (110,000)
--------- ------- --------- ------- ---------- ---------- ----------- -------------
Balance at July 29, 2000 604,759 $6,000 6,954,020 $69,000 $2,324,000 $(165,000) $29,005,000 $(14,306,000)
========= ======= ========= ======= ========== ========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Comprehensive Stockholders'
Loss Equity
------------- -------------
<S> <C> <C>
Balance at January 29, 2000 $ (64,000) $ 17,543,000
Net loss -- (633,000)
Foreign currency translation
adjustment 5,000 5,000
Stock warrants revaluation -- 33,000
Common stock transactions:
Sales of common shares -- 36,000
Preferred stock transactions:
Preferred stock dividends -- (110,000)
------------ --------------
Balance at July 29, 2000 $ (59,000) $ 16,874,000
============ ==============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
SUCCESSORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
July 29, July 31,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (633,000) $(1,326,000)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,375,000 1,292,000
Amortization of debt discount 150,000 114,000
Minority interests in subsidiaries 110,000 64,000
----------- -----------
1,002,000 144,000
Changes in operating assets and liabilities:
Accounts and notes receivable 254,000 696,000
Inventories 146,000 1,300,000
Prepaid catalog expenses 419,000 (76,000)
Other prepaid expenses (200,000) (268,000)
Accounts payable (958,000) (1,083,000)
Accrued expenses 274,000 (208,000)
Intangibles and other assets (183,000) (40,000)
----------- -----------
Net cash provided by operating activities 754,000 465,000
----------- -----------
Cash flows from investing activities:
Proceeds from notes receivable issued in connection with
sale of property and equipment 65,000 42,000
Proceeds from sale of property and equipment -- 2,000
Purchases of property and equipment (174,000) (373,000)
----------- -----------
Net cash used in investing activities (109,000) (329,000)
----------- -----------
Cash flows from financing activities:
Proceeds from sales of common stock 36,000 35,000
Proceeds from sale of preferred stock -- 1,220,000
Proceeds from notes receivable issued to stockholders -- 58,000
Net borrowings (repayments) on revolving credit loan 242,000 (602,000)
Repayments of long-term debt (1,050,000) (1,365,000)
Payment of minority interests in subsidiaries (189,000) (157,000)
----------- -----------
Net cash used in financing activities (961,000) (811,000)
----------- -----------
Net decrease in cash (316,000) (675,000)
Cash and cash equivalents, beginning of period 1,239,000 1,615,000
----------- -----------
Cash and cash equivalents, end of period $ 923,000 $ 940,000
=========== ===========
</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 motivational products. The
Company considers itself a single line of business with products that are
marketed primarily under the SUCCESSORIES trade name through direct marketing
(catalog, electronic commerce and telemarketing), retail (Company-owned
stores), sales to franchisees and wholesale distribution channels. The
Company operates a chain of Successories retail stores located in the United
States and Canada. 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 six months ended July 29, 2000 and July 31, 1999,
refer to the thirteen and twenty-six weeks ended on the dates indicated.
The results of operations for the six months ended July 29, 2000 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 29, 2000.
NOTE 3. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
July 29, January 29,
2000 2000
----------- -----------
<S> <C> <C>
Finished goods $ 5,417,000 $ 5,835,000
Raw materials 2,759,000 2,487,000
----------- -----------
8,176,000 8,322,000
Less: reserve for obsolescence (324,000) (324,000)
----------- -----------
$ 7,852,000 $ 7,998,000
=========== ===========
</TABLE>
7
<PAGE>
NOTE 4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
July 29, January 29,
2000 2000
----------- -----------
<S> <C> <C>
Bank borrowings:
Term loan, net of unamortized debt discount of
$695,000 and $782,000 $ 3,218,000 $ 4,133,000
Revolving credit loan 2,361,000 2,119,000
Fixed rate loan, net of unamortized debt discount of
$170,000 and $200,000 330,000 300,000
Capital lease obligations 24,000 72,000
----------- -----------
5,933,000 6,624,000
Less: current portion (3,563,000) (3,250,000)
----------- -----------
Long-term debt $ 2,370,000 $ 3,374,000
=========== ===========
</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 August 28, 2000, 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. In addition, from August
2000 through February 2001, the borrowing base is further reduced by
$1,500,000 ("Holdback") and in February 2001 shall be released if the amount
of Holdback is applied to the scheduled payments of principal on the term
loan for the remainder of 2001. 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 was 10.75% and the interest rate on the
revolving credit loan was 10.25% at July 29, 2000. The term loan is payable
in quarterly installments of $312,500 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. As of July 29, 2000,
available borrowings on the revolving credit loan were $3,247,000. 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 of the
Company's common stock 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.
8
<PAGE>
In conjunction with the April 28, 1999 amendment to the credit agreement,
warrants to purchase an additional 300,000 shares of the Company's common
stock were issued to the Bank. Initially those warrants had exercise prices
of $2.50 and an expiration date of July 2005; however, the exercise price was
subsequently adjusted to $2.00.
The credit facility agreement contains, among other provisions, requirements
for maintaining certain earnings levels and financial ratios, limits on
capital expenditures and additional indebtedness, and restrictions on the
payment of dividends and use of proceeds from certain equity offerings. At
July 29, 2000, the Company was in compliance with the debt covenant
requirements of the credit facility agreement.
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 $150,000 and $114,000 for the six months ended July 29,
2000 and July 31, 1999, respectively.
The weighted average interest rates on borrowings outstanding as of July 29,
2000 and July 31, 1999 were 11.2% and 10.5%, respectively.
NOTE 5. INCOME TAXES
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. Although the Company has
incurred a net loss in the past two years and has an accumulated deficit of
$14,306,000 as of July 29, 2000 and realization of the net deferred tax asset
is not assured, management believes that it is more likely than not that the
net deferred tax asset will be realized.
NOTE 6. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures to the statements of cash flows are as follows:
<TABLE>
<CAPTION>
Six Months Ended
------------------------
July 29, July 31,
2000 1999
-------- --------
<S> <C> <C>
Cash paid during the period for:
Income taxes $ 19,000 $ 40,000
Interest 405,000 568,000
Non-Cash investing and financing activities:
Preferred stock dividends $110,000 $ 8,000
Revaluation of stock warrants 33,000 503,000
</TABLE>
9
<PAGE>
NOTE 7. LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic and diluted loss per share:
Net loss $ (272,000) $ (769,000) $ (633,000) $(1,326,000)
Preferred stock dividend (55,000) (8,000) (110,000) (8,000)
----------- ----------- ----------- -----------
Loss available to common
stockholders $ (327,000) $ (777,000) $ (743,000) $(1,334,000)
=========== =========== =========== ===========
Weighted-average shares 6,949,905 6,924,552 6,949,221 6,926,360
=========== =========== =========== ===========
Basic and diluted loss per share $ (0.05) $ (0.11) $ (0.11) $ (0.19)
=========== =========== =========== ===========
</TABLE>
The diluted computations did not assume the exercise of stock options and
warrants, nor the conversion of preferred stock due to their antidilutive
effect on the loss per share.
NOTE 8. SEGMENT AND RELATED INFORMATION
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." 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 sales to
franchisees. The Company has five reportable segments - Direct 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.
10
<PAGE>
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 JULY 29, 2000:
Direct Marketing SUCCESSORIES $ 7,628,000 $ 1,088,000 $ 2,867,000 $ -- $ 96,000
Direct Marketing Golf 32,000 14,000 377,000 -- --
Retail Company-owned stores 2,543,000 180,000 3,848,000 -- 146,000
Wholesale 101,000 26,000 25,000 -- --
Sales to Franchisees 1,176,000 182,000 1,345,000 -- 7,000
Other -- (1,762,000) 19,306,000 142,000 439,000
----------- ----------- ----------- ----------- -----------
CONSOLIDATED $11,480,000 $ (272,000) $27,768,000 $ 142,000 $ 688,000
THREE MONTHS ENDED JULY 31, 1999:
Direct Marketing SUCCESSORIES $ 6,608,000 $ 1,216,000 $ 1,603,000 $ -- $ 10,000
Direct Marketing Golf 453,000 40,000 790,000 -- --
Retail Company-owned stores 3,164,000 (142,000) 5,425,000 107,000 223,000
Wholesale 219,000 (32,000) 756,000 -- --
Sales to Franchisees 1,165,000 247,000 993,000 -- 5,000
Other -- (2,098,000) 22,186,000 160,000 544,000
----------- ----------- ----------- ----------- -----------
CONSOLIDATED $11,609,000 $ (769,000) $31,753,000 $ 267,000 $ 782,000
SIX MONTHS ENDED JULY 29, 2000:
Direct Marketing SUCCESSORIES $16,186,000 $ 2,238,000 $ 2,867,000 $ -- $ 144,000
Direct Marketing Golf 84,000 42,000 377,000 -- --
Retail Company-owned stores 4,951,000 189,000 3,848,000 2,000 372,000
Wholesale 238,000 52,000 25,000 -- --
Sales to Franchisees 2,340,000 437,000 1,345,000 -- 15,000
Other -- (3,591,000) 19,306,000 172,000 844,000
----------- ----------- ----------- ----------- -----------
CONSOLIDATED $23,799,000 $ (633,000) $27,768,000 $ 174,000 $ 1,375,000
SIX MONTHS ENDED JULY 31, 1999:
Direct Marketing SUCCESSORIES $13,926,000 $ 2,208,000 $ 1,603,000 $ -- $ 10,000
Direct Marketing Golf 710,000 104,000 790,000 -- --
Retail Company-owned stores 6,168,000 (252,000) 5,425,000 115,000 386,000
Wholesale 592,000 (55,000) 756,000 -- --
Sales to Franchisees 2,269,000 509,000 993,000 -- 10,000
Other -- (3,840,000) 22,186,000 258,000 886,000
----------- ----------- ----------- ----------- -----------
CONSOLIDATED $23,665,000 $(1,326,000) $31,753,000 $ 373,000 $ 1,292,000
</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.
11
<PAGE>
The following table presents the details for "Other":
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Other expense (income):
Contract framing, net income $ (218,000) $ -- $ (218,000) $ --
Corporate expenses 1,197,000 1,224,000 2,292,000 2,242,000
Unallocated depreciation and
amortization expense 439,000 544,000 844,000 886,000
Other expenses 344,000 330,000 673,000 712,000
------------- ------------- ------------- -------------
$ 1,762,000 $ 2,098,000 $ 3,591,000 $ 3,840,000
============= ============= ============= =============
</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 (excluding workman's comp).
The Company's operations are principally in North America. No single foreign
country or geographic area is significant to the consolidated operations.
Long-lived assets are all located in North America.
The Company's products include distinctive lines of wall decor, desktop
accessories, books and stationery, personalized gifts and awards. In
addition, the Company sells other motivational products supplied by third
parties. At July 29, 2000 and July 31, 1999, sales by product categories
comprised of approximately 47% wall decor, 20% desktop accessories, 16% and
17% books and stationery, 15% and 12% personalized gifts and awards, and 2%
and 4% other products, respectively.
NOTE 9. 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.
12
<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.
13
<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 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 accessories, books and stationery, personalized gifts and
awards. 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. The Company
will also customize products to fulfill customers' special needs.
The Company's products are marketed primarily under its SUCCESSORIES trade
name through direct marketing (catalog, electronic commerce and
telemarketing), retail channel (Company-owned stores), sales to franchisees
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. 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 three and six months ended July 29, 2000 and July 31, 1999, net
product sales for the various distribution channels, as a percentage of total
net product sales, were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- ---------------------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Direct marketing - SUCCESSORIES 66.4% 56.9% 68.0% 58.8%
Direct marketing - Golf 0.3% 3.9% 0.4% 3.0%
Retail Company-owned stores 22.2% 27.3% 20.8% 26.1%
Wholesale distribution 0.9% 1.9% 1.0% 2.5%
Sales to franchisees 10.2% 10.0% 9.8% 9.6%
</TABLE>
The gross profit margins for direct marketing and retail vary due to
differences in product mix and volume discounts taken by customers based on
order size. The gross profit margin for wholesale distribution sales and
sales to franchisees is lower than other channels since these sales are
generally made at a significant discount from retail price.
14
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the results of operations for the
three months and six months ended July 29, 2000 and July 31, 1999.
<TABLE>
<CAPTION>
Three Months Ended Increase (Decrease)
--------------------------------------------------- -------------------
July 29, 2000 July 31, 1999
---------------- -------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net product sales $ 11,480 100.0 $ 11,609 100.0 $ (129) (1.1)
Cost of goods sold 5,005 43.6 5,190 44.7 (185) (3.6)
-------- ----- -------- ----- --------
Gross profit on product sales 6,475 56.4 6,419 55.3 56 0.9
Contract framing, net income 218 1.9 -- -- 218 100.0
Fees, royalties and other income 275 2.4 229 2.0 46 20.1
-------- ----- -------- ----- --------
Gross margin 6,968 60.7 6,648 57.3 320 4.8
Operating expenses 6,896 60.1 7,087 61.0 (191) (2.7)
-------- ----- -------- ----- --------
Income (loss) from operations 72 0.6 (439) (3.7) 511 116.4
Interest and other expenses 344 3.0 330 2.9 14 4.2
----- ----- -------- ----- --------
(Loss) income before income taxes (272) (2.4) (769) (6.6) 497 64.6
Income tax expense -- -- -- -- -- --
--------- ----- -------- ----- --------
Net (loss) income $ (272) (2.4) $ (769) (6.6) $ 497 64.6
========= ===== ======== ===== ========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Increase (Decrease)
------------------------------------- -------------------
July 29, 2000 July 31, 1999
------------- -------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net product sales $ 23,799 100.0 $ 23,665 100.0 $ 134 0.6
Cost of goods sold 10,362 43.5 10,452 44.2 (90) (0.9)
-------- ----- -------- ----- --------
Gross profit on product sales 13,437 56.5 13,213 55.8 224 1.7
Contract framing, net income 218 0.9 -- -- 218 100.0
Fees, royalties and other income 490 2.0 384 1.6 106 27.6
-------- ----- -------- ----- --------
Gross margin 14,145 59.4 13,597 57.4 548 4.0
Operating expenses 14,105 59.3 14,211 60.0 (106) (0.7)
-------- ----- -------- ----- --------
Income (loss) from operations 40 0.1 (614) (2.6) 654 106.5
Interest and other expenses 673 2.8 712 3.0 (39) (5.5)
-------- ----- -------- ----- --------
(Loss) income before income taxes (633) (2.7) (1,326) (5.6) 693 52.3
Income tax expense -- -- -- -- -- --
-------- ----- -------- ----- --------
Net (loss) income $ (633) (2.7) $ (1,326) (5.6) $ 693 52.3
======== ===== ======== ===== ========
</TABLE>
THREE MONTHS ENDED JULY 29, 2000, COMPARED TO THREE MONTHS ENDED JULY 31, 1999
Net product sales were $11,480,000 for the three months ended July 29, 2000
(second quarter 2000), compared to $11,609,000 for the corresponding three
months ended July 31, 1999 (second quarter 1999). The $129,000 or 1.1%
decrease in sales was comprised of an increase of $1,020,000 or 15.4% in
direct marketing - SUCCESSORIES, and $11,000 or 0.9% in sales to franchisees,
offset by a decrease in retail Company-owned store sales of $621,000 or
19.6%, $421,000 or 92.9% in direct marketing - golf, and $118,000 or 53.9% in
wholesale.
The 15.4% increase in direct marketing-SUCCESSORIES sales was attributable to
continued refinement of the catalog circulation strategy and an increase in
catalog page count in the current year. Internet sales,
15
<PAGE>
which are included in the direct marketing - SUCCESSORIES channel, were
15.9% of the direct marketing - domestic sales for the second quarter 2000.
Customer interest in the website has steadily increased from the prior year
and the Company believes the internet offers a significant marketing and
sales opportunity. The overall decrease in retail Company-owned store sales
was due to eight fewer stores in operation in the current year compared to
the prior year. The comparable same store sales in retail Company-owned
stores increased by 6.3% in the current year compared to the prior year. The
increase in direct marketing - SUCCESSORIES, sales to franchisees and
comparable same store sales for Company-owned retail stores is also the
result of enhanced merchandising and new product introductions in the current
year. The decrease in wholesale and direct marketing golf sales in the
current year can be attributed to the planned reduction in the scope of these
businesses.
Gross margin, as a percentage of net product sales, was 60.7% for the second
quarter 2000 in comparison to 57.3% for the second quarter 1999. Gross margin
increased in the current year to $6,968,000 from $6,648,000 in the prior
year. The improvement in gross margin can be primarily attributed to net
income from contract framing operations of $218,000. Contract framing,
undertaken in earnest in the current year, consists of the framing of third
party products on a fee basis. These operations not only contribute to the
gross margin but also allow better utilization of personnel and facilities
during the Company's seasonally slower production periods.
Operating expenses, as a percentage of net product sales, improved in the
second quarter 2000 to 60.1% from 61.0% in the second quarter 1999, as a
result of streamlining the operations. Operating expenses decreased in the
current year to $6,896,000 from $7,087,000 in the prior year as a result of
eight fewer stores in operation and a reduction in the scope of business in
the wholesale and direct marketing - golf channel, offset by an increase in
expenses in the direct marketing - SUCCESSORIES channel related to additional
catalog advertising and investment in the internet.
Interest expense was $274,000 for the second quarter 2000, compared to
$333,000 for the second quarter 1999. Included in interest expense is the
amortization of the debt discount which is a non-cash expense. This non-cash
interest expense amounted to $78,000 and $72,000 for the second quarter 2000
and 1999, respectively.
The net loss of $272,000 for the second quarter 2000 was less than the net
loss of $769,000 for the second quarter 1999, which represents a 64.6%
improvement. As a percentage of net product sales, the net loss decreased to
2.4% in the current year, as compared to a net loss of 6.6% in the prior
year. The improvement in net loss is primarily the result of an increase in
the gross margin and a reduction in operating expenses, through better
management of the business.
SIX MONTHS ENDED JULY 29, 2000, COMPARED TO SIX MONTHS ENDED JULY 31, 1999
Net product sales were $23,799,000 for the six months ended July 29, 2000,
compared to $23,665,000 for the corresponding six months ended July 31, 1999.
The $134,000, or 0.6% increase in sales is comprised of an increase of
$2,260,000 or 16.2% in direct marketing - SUCCESSORIES, and $71,000 or 3.1%
in sales to franchisees, offset by a decrease of $1,217,000 or 19.7% in
retail Company-owned stores sales, $626,000 or 88.2% in direct marketing -
golf, and $354,000 or 59.8% in wholesale. The overall decrease in retail
Company-owned store sales was due to eight fewer stores in operation in the
current year compared to the prior year. The comparable same store sales in
retail Company-owned stores increased 6.8% in the current year. The increase
in sales in direct marketing - SUCCESSORIES, sales to franchisees and
comparable same store sales is because of the continued positive impact of
the refined catalog circulation strategy and enhanced product offering, in
the current year.
16
<PAGE>
Gross margin, as a percentage of net product sales, was 59.4% for the six
months ended July 29, 2000, compared to 57.4% for the corresponding six
months ended July 31, 1999. The increase in gross margin can be primarily
attributed to the improvement in gross profit as a percentage of net sales by
1.1% and net income from contract framing operations in the second quarter
2000. The improvement in gross profit is the result of a change in the net
product sales mix amongst the various channels, which have different gross
profits, in the current year compared to the prior year. As a result, gross
margin increased in the current year to $14,145,000 from $13,597,000 in the
prior year.
Operating expenses decreased for the six months ended July 29, 2000 to
$14,105,000 from $14,211,000 for the six months ended July 31, 1999.
Operating expenses, as a percentage of net product sales, was 59.3% in the
current year compared to 60.0% in the prior year, as a result of streamlining
the operations. The decrease in operating expenses is the result of eight
fewer stores in operation and a reduction in the scope of business in the
wholesale and direct marketing - golf channel, offset by an increase in
expenses in the direct marketing - SUCCESSORIES channel related to additional
catalog advertising and investment in the internet.
Interest expense was $558,000 for the six months ended July 29, 2000,
compared to $696,000 for the six months ended July 31, 1999. Included in
interest expense is the amortization of the debt discount which is a non-cash
expense. This non-cash interest expense amounted to $150,000 and $114,000 for
the six months ended July 29, 2000 and July 31, 1999, respectively.
The net loss of $633,000 for the six months ended July 29, 2000 was less than
the net loss of $1,326,000 for the six months ended July 31, 1999. As a
percentage of net product sales, the net loss decreased to 2.7% for the six
months ended July 29, 2000, as compared to a net loss of 5.6% for the six
months ended July 31, 1999. The improvement in net loss is primarily the
result of improvement in gross margin and operating expenses, through better
management of the business.
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.
Operating activities provided cash of $754,000 for the six months ended July
29, 2000, compared to $465,000 for the six months ended July 31, 1999. The
improvement in cash flows from operating activities in the current year can
be primarily attributed to a decrease in the net loss and a change in prepaid
advertising, offset by changes in accounts receivable and inventory. In the
prior year, cash flow from operating activities was primarily provided by a
reduction in accounts receivable and inventory as a result of improvement in
collection of receivables and management's planned efforts to reduce excess
inventory levels from the fiscal year ended January 30, 1999.
Investing activities used cash of $109,000 for the six months ended July 29,
2000, compared to $329,000 for the six months ended July 31, 1999. The
principal use of cash in investing activities is capital expenditures. In the
current year, the Company expended funds primarily for upgrade and additional
purchases of computer and machinery equipment. And in the prior year, the
Company expended funds to open a new Company-owned store and upgrade its
equipment to address the year 2000 compliance needs. The Company's credit
facility limits capital expenditures to $1 million for the fiscal year.
17
<PAGE>
Financing activities used cash of $961,000 for the six months ended July 29,
2000, compared to $811,000 for the six months ended July 31, 1999. Scheduled
debt repayments on the term note and net repayments on the revolving credit
loan were the principal uses of cash. Proceeds from net borrowings on the
revolving credit loan were the principal source of cash. In addition, in the
prior year the Company received $1,220,000 in proceeds from the sale of
convertible preferred stock. Pursuant to the terms of the bank credit
agreement, $1,000,000 of the proceeds from the sale of preferred stock were
used to make a prepayment on the scheduled repayments on the term loan for
the fiscal year.
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 August 28, 2000, 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. In addition, from August
2000 through February 2001, the borrowing base is further reduced by
$1,500,000 ("Holdback") and in February 2001 shall be released if the amount
of Holdback is applied to the scheduled payments of principal on the term
loan for the remainder of 2001. 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 was 10.75% and the interest rate on the
revolving credit loan was 10.25% at July 29, 2000. The term loan is payable
in quarterly installments of $312,500 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. As of July 29, 2000,
available borrowings on the revolving credit loan were $3,247,000. 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.
The credit facility also contains, among other provisions, requirements for
maintaining certain earnings levels and financial ratios, limits on capital
expenditures and additional indebtedness, and restrictions on the payment of
dividends and use of proceeds from certain equity offerings. At July 29,
2000, the Company was in compliance with the debt covenant requirements of
the credit facility agreement.
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.
The Company is currently pursuing a possible equity infusion from a rights
offering to its existing shareholders, announced in July 2000, to sell
additional shares of its common stock. The proceeds expected from the
offering range from a minimum of $3,000,000 to a maximum of $5,000,000. The
offering has an expiration date of September 30, 2000, which may be extended
by the Company to a date no later than October 31, 2000. The Company expects
to use the net proceeds from the offering to pay down a portion of the
outstanding term loan and revolving credit loan, and the remaining funds
would be used for working capital. Currently, there is no assurance that the
Company will in fact close the rights offering. The equity infusion would
reduce the Company's debt and correlated interest expense, increase the
working capital available for investing in the growth of the business and
improve the overall debt to equity positioning of the Company.
18
<PAGE>
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 the other
segments of its business. Most operating expenses are incurred evenly
throughout the year, although some selling and administrative expenses are
variable depending on 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 converting Company-owned stores to franchise stores, catalog
mailings, and the timing of new product introductions and promotions by the
Company. The Company's cash requirements generally reach a seasonal peak in
the second half of the year 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 of 1933 and
Section 21E of the Securities Exchange Act of 1934. 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, proceeds from additional equity infusion, 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, the Company's generation of funds sufficient to meet its current
operating needs and to fund anticipated capital expenditures, realization of
deferred tax assets, 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. These risks and
uncertainties should be considered in evaluating forward-looking statements
and undue reliance should not be placed on such statements.
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 $6,274,000 in variable rate debt. The impact of a 1% change in
interest rates on the variable rate debt is approximately $63,000. The
Company's exposure to foreign currency exchange rate risk relates primarily
to the financial position and results of operations in Canada and net product
sales from customers outside North America. 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.
19
<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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on July 25, 2000, and the
following matters were voted on at the meeting:
1. The election of the following directors, who will serve for the terms
indicated or until their successors are elected and qualified:
Class I - Term Expiring in Year 2002
<TABLE>
<CAPTION>
Director For Abstain
<S> <C> <C>
Howard I. Bernstein 7,615,531 26,408
Lawrence A. Hodges 7,614,070 27,869
</TABLE>
Class II - Term Expiring in Year 2003
<TABLE>
<CAPTION>
Director For Abstain
<S> <C> <C>
Leslie Nathanson Juris 7,614,070 27,869
R. Scott Morrison, Jr. 7,615,681 26,258
</TABLE>
Class III - Term Expiring in Year 2001
<TABLE>
<CAPTION>
Director For Abstain
<S> <C> <C>
Jack Miller 7,616,731 25,208
</TABLE>
Continuing Directors - Arnold M. Anderson and Gary J. Rovansek (term
expires in 2001)
20
<PAGE>
<TABLE>
<S> <C>
2. The ratification of the appointment of Crowe, Chizek and Company, LLP
as independent accountants for the fiscal year ending February 3, 2001,
was approved by the following vote: For, 7,592,224; Against, 26,195;
and Abstain 23,520.
3. The transaction of other business that may have properly come before
the annual shareholders meeting was approved by the following vote:
For, 7,121,772; Against, 381,954; and Abstain, 138,213.
</TABLE>
ITEM 5. OTHER INFORMATION
On July 14, 2000 a Form S-3 reporting a rights offering by the Company was
filed, and subsequently an amendment to the Form S-3 was filed on August 28,
2000. The Form S-3 relates to the Company's rights offering to common and
preferred shareholders of record on August 4, 2000, to sell a minimum of
1,500,000 and a maximum of 2,500,000 shares of the Company's common stock.
The purchase price per share of common stock is $2.00. The offering has an
expiration date of September 30, 2000, which may be extended by the Company
to a date no later than October 31, 2000.
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 during the three months ended
July 29, 2000.
21
<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: September 8, 2000 By: /s/ Gary J. Rovansek
--------------------
Gary J. Rovansek
President, Chief Executive Officer,
Chief Operating Officer and Director
(Principal Executive Officer)
Date: September 8, 2000 By: /s/ John C. Carroll
-------------------
John C. Carroll
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
22
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Articles of Incorporation of Registrant - Amended and Restated
as of October 28, 1999 (21)
3.3 By-laws of Registrant (1)
3.4 Amended and Restated 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 Cumulative Convertible Preferred Stock
Certificate (20)
4.3 Specimen Series B Cumulative Convertible Preferred Stock
Certificate (20)
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 J. Rovansek, R. Scott
Morrison, Jr., Jack Miller, Howard I. Bernstein, Lawrence A.
Hodges, and Leslie Nathanson Juris.
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 (a) Employment Agreement with Arnold M. Anderson dated March 1,
1996 (10)*
10.8 (b) Employment Agreement with Arnold M. Anderson dated January 14,
1997 (21)*
10.8 (c) Addendum to Employment Agreement with Arnold M. Anderson dated
February 16, 2000 (21)*
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
10.9 Employment Agreement with Michael H. McKee dated June 1, 1999
(18)*
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
The Provident Bank 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)
10.23 Fifth Amendment to Credit Agreement between the Company and
The Provident Bank dated as of April 6, 2000 (22)
21.1 Subsidiaries of the Registrant (4)
27.1 Financial Data Schedule (filed herewith)
</TABLE>
--------------------------------------
* Denotes management contract, or compensatory plan or arrangement required to
be filed as an exhibit.
24
<PAGE>
-----------------------------
<TABLE>
<S> <C>
(1) Previously filed with the Company's Registration Statement on Form
SB-2, No. 33-76530C filed on August 17, 1993, and incorporated herein
by reference.
(2) Previously filed with the Company's Registration Statement of Form S-3,
No. 333-19313, and incorporated herein by reference.
(3) Previously filed with the Company's Post-effective Amendment No. 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 Company's 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 Current Report on Form 8-K filed on
June 7, 1995, reporting date of event May 26, 1995, and incorporated
herein by reference.
(7) Previously filed with the Company's 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 Report 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 Report for the quarter
ended August 3, 1996, and incorporated herein by reference.
(11) Previously filed with the Company's Form 10-Q Report 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 Report for the quarter
ended August 2, 1997, and incorporated herein by reference.
(14) Previously filed with the Company's Form 10-Q Report for the quarter
ended May 2, 1998, and incorporated herein by reference.
(15) Previously filed with the Company's Form 10-Q Report for the quarter
ended October 31, 1998, and incorporated herein by reference.
(16) Previously filed with the Company's Current Report on Form 8-K filed 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 Report for the quarter
ended May 1, 1999, and incorporated herein by reference.
(18) Previously filed with the Company's Form 10-Q Report for the quarter
ended July 31, 1999, and incorporated herein by reference.
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
(19) Previously filed with the Company's Current Report on Form 8-K filed on
November 4, 1999, reporting date of event October 18, 1999, and
incorporated herein by reference.
(20) Previously filed with the Company's Form 10-Q Report for the Quarter
ended October 30, 1999, and incorporated herein by reference.
(21) Previously filed with the Company's Annual Report on form 10-K for the
year ended January 29, 2000, and incorporated herein by reference.
(22) Previously filed with the Company's Form 10-Q Report for the Quarter
ended April 29, 2000, and incorporated herein by reference.
</TABLE>
26
