SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission File Number 0-28174
The Lamaur Corporation
(Exact name of registrant as specified in its charter)
Delaware 68-0301547
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Lovell Avenue, Mill Valley CA 94941
(Address of principal executive offices) (Zip Code)
(415) 380-8200
(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 [ ]
At April 30, 1997, there were 5,659,495 shares of the Registrant's $.01 par
value Common Stock outstanding.
<PAGE>
This quarterly report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in
this Form 10-Q pursuant to the "safe harbor" provision of the Private Securities
Litigation Reform Act of 1995. They involve known and unknown risks and
uncertainties that may cause the Company's actual results in future periods to
be materially different from any future performance suggested herein. Further,
the Company operates in an industry sector where securities values may be
volatile and may be influenced by economic and other factors beyond the
Company's control. In the context of the forward-looking information provided in
this Form 10-Q and in other reports, please refer to the discussions of risk
factors and investment considerations detailed in, as well as the other
information contained in, the Company's filings with the Securities and Exchange
Commission during the past 12 months.
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THE LAMAUR CORPORATION
Index to Form 10-Q
March 31, 1997
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Part I - Financial Information
Item 1. Condensed Financial Statements (Unaudited)
Balance Sheets as of March 31, 1997 and December 31, 1996 4
Statements of Operations for the Three Months Ended March 31, 1997 and 1996 5
Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations 8
Part II - Other Information 10
Signature 11
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
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THE LAMAUR CORPORATION
CONDENSED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
March 31, December 31,
1997 1996
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ASSETS
Current Assets:
Cash and cash equivalents.................. $ 7,528 $ 12,081
Receivables from DowBrands................. 1,299 1,450
Accounts receivable, net................... 20,618 17,214
Inventories................................ 13,454 11,699
Prepaid expenses and other current assets.. 425 523
Total current assets................... 43,324 42,967
Property, Plant and Equipment, Net.............. 18,551 18,475
Other Assets.................................... 189 124
Total Assets........................... $ 62,064 $ 61,566
- - ------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................. $ 6,801 $ 6,724
Accrued expenses............................. 3,686 4,637
Accrued salaries, wages and employee-related expenses 1,473 2,458
Current portion of long-term debt............ 1,320 1,272
Payables to related parties.................. 1,125 1,500
Total current liabilities................ 14,405 16,591
Long-Term Debt.................................... 17,859 13,723
Related Party Obligations......................... 1,000 1,000
Stockholders' Equity
Preferred stock, $.01 par value, 4,000,000 shares authorized:
Series A Preferred stock, $.01 par value, 1,000,000 shares
issued and outstanding at March 31, 1997 and December 31,
1996. ($10.0 million liquidation preference)............ 8,500 8,500
Series B Preferred stock, $.01 par value, 763,500
shares issued and outstanding at March 31, 1997
and December 31, 1996. ($5.0 million liquidation preference) 5,000 5,000
Common stock, $.01 par value, 12,000,000 shares authorized,
5,659,495 and 5,603,395 shares, issued and outstanding at
March 31, 1997 and December 31, 1996, respectively....... 57 56
Additional paid-in capital................................ 19,780 19,796
Stock subscriptions receivable............................ (50) (50)
Accumulated deficit....................................... (4,487) (3,050)
Total stockholders' equity............................ 28,800 30,252
Total Liabilities and Stockholders'Equity............. $ 62,064 $ 61,566
- - ----------------------------------------------------------------
See notes to financial statements
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THE LAMAUR CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
1997 1996
--------------------------
Net Sales........................................ $ 26,280 $ 21,616
Net Sales to DowBrands........................... 2,933 6,864
--------- ---------
Total Net Sales.................................. 29,213 28,480
Cost of Goods Sold............................... 17,316 17,954
--------- ---------
Gross Margin..................................... 11,897 10,526
Selling, General and Administrative Expenses..... 13,128 10,843
--------- ---------
Operating Loss................................... (1,231) (317)
Interest Expense................................. (398) (414)
Other Income..................................... 192 8
--------- ---------
Net Loss......................................... (1,437) (723)
Dividends on Series B Preferred Stock............ (100) -
--------- ---------
Net Loss Available to Common Shareholders........ $ (1,537) $ (723)
========== ==========
Net Loss per Common Share........................ $ (.24) $ (.18)
========== ==========
Weighted Average Common and Common Equivalent Shares
Outstanding................................... 6,487 4,086
========== ==========
See notes to financial statements
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THE LAMAUR CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------------------
1997 1996
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Cash Flows From Operating Activities:
Net loss.............................................. $ (1,437) $ (723)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash credits for services....................... - 83
Issuance of common stock for services.............. - 94
Utilization of DowBrands credits................... (375) (375)
Loss on disposal of assets......................... 18 -
Depreciation and amortization...................... 376 321
Effect of changes in:
Receivables..................................... (3,253) (3,355)
Inventories..................................... (1,755) 872
Other assets.................................... 15 1
Payables........................................ 144 296
Accrued expenses................................ (1,936) 168
Net cash used in operating activities................ (8,203) (2,618)
Cash Flows From Investing Activities:
Additions to property, plant and equipment............ (463) (72)
Proceeds from sale of assets.......................... 11 -
Acquisition of PCD.................................... - 665
Net cash provided by (used in) investing activities (452) 593
Cash Flows From Financing Activities:
Revolving credit agreement, net....................... 3,814 596
Borrowings of long-term debt.......................... 691 -
Repayments of long-term debt.......................... (322) (300)
Proceeds from sales of common stock, net.............. 86 (153)
Payment of preferred dividends........................ (167) -
Net cash provided by financing activities.......... 4,102 143
Net Decrease in Cash and Cash Equivalents................. (4,553) (1,882)
Cash and Cash Equivalents at Beginning of Period.......... 12,081 2,338
Cash and Cash Equivalents at End of Period................ $ 7,528 $ 456
==============================================================
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See notes to financial statements
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THE LAMAUR CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
- - -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed financial statements are unaudited and
include all adjustments, which consist of only normal recurring accruals, that
management considered necessary to fairly present the results for such periods.
These financial statements should be read in conjunction with the financial
statements and notes contained in The Lamaur Corporation's ("Company") Annual
Report on Form 10-K for the year ended December 31, 1996. Results for interim
periods are not necessarily indicative of results for the full year.
Net Loss Per Share was computed by dividing net loss by the weighted
average number of shares of common stock and common stock equivalents, which
consist of Series A preferred stock, warrants and options. In accordance with
the rules of the Securities and Exchange Commission, common stock equivalents
issued within one year of the Company's initial public offering, have been
considered as outstanding since the inception of the Company and have been
included in the calculation of weighted average common and common equivalent
shares outstanding for all periods presented using the treasury stock method,
even though they are antidilutive in loss periods. Fully diluted earnings per
share has not been presented since the computation would not be dilutive.
Reclassification - Certain reclassifications have been made in the
accompanying financial statements in order to conform with the 1997
presentation.
2. ORGANIZATION AND OPERATIONS
Effective March 26, 1997, Electronic Hair Styling, Inc. changed its name
to The Lamaur Corporation. The Company, a Delaware corporation, is the successor
to Electronic Hair Styling, Inc., which was incorporated in the State of
Washington on April 1, 1993 (the "Predecessor"). Effective March 18, 1996,
Predecessor merged with and into its wholly-owned subsidiary, the Company. In
connection with the merger, the Company issued .660 shares of common stock in
exchange for each issued and outstanding share of Predecessor common stock. The
accompanying Company financial statements, which are substantially identical to
Predecessor's financial statements for periods prior to the merger, give
retroactive effect to the merger.
The Company develops, formulates, manufactures and markets personal hair
care products, consisting of shampoos, conditioners, hair sprays, permanent wave
products and other styling aids, for both consumer and professional hair care
markets. The Company is also engaged in the early stages of research and
development with respect to a new hair styling concept which is intended to
combine electronics and chemicals to create new products designed to color,
style and condition hair quickly, without the damaging side effects often
experienced with most chemical-based hair styling products. The Company licensed
the technology from Intertec Ltd., which is the sole limited partner of Intertec
Holdings, L.P., the principal stockholder of the Company. Prior to the
acquisition, the Company was a development stage company.
3. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128). The Company is required to adopt SFAS 128 in the fourth quarter of 1997
and will restate at that time earnings per share (EPS) data for prior periods to
conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income [available to common shareholders] by the
weighted average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
If SFAS 128 had been in effect during the current and prior year periods,
basic loss per share would have been $.27 and $.24 for the quarters ended March
31, 1997 and 1996, respectively. Diluted loss per share under SFAS 128 would not
have been significantly different than net loss per share reported for the
periods.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Total net sales of $29.2 million for the quarter ended March 31, 1997
increased by $.7 million or 2.6% as compared with the same period in 1996. The
sales growth during the quarter is principally due to the launch of WILLOW
LAKE(TM) which is the Company's new premium priced retail hair care product line
targeted for the natural's segment and positioned as "Nature's prescription for
beautiful hair.(TM)" This sales growth was partially offset by sales decreases
in the contract manufacturing group, principally DowBrands, and STYLE(R) and
SALON STYLE(R) brands.
Gross margin as a percentage of total net sales was 40.7%, for the quarter
ended March 31, 1997 as compared with gross margin of 37.0% for the same period
in 1996. The improvement in the gross margin percentage is due to a change in
product mix and increased sales of higher margin products mainly driven by the
new WILLOW LAKE(TM) line.
Operating expenses for the quarter ended March 31, 1997 increased to $13.1
million or 44.9% of total net sales as compared to $10.8 million or 38.1% of
total net sales for the same period in 1996. This increase is principally
attributable to increased marketing of $2.0 million and brokerage fees
supporting the launch of WILLOW LAKE(TM) and the COLOR SOFT(TM) line. The
marketing investment spending for these brands will have an impact on near term
earnings but is essential to building future revenues and earnings.
Interest expense of $.4 million for the quarter ended March 31, 1997
was relatively unchanged as compared with the same period in 1996.
Other income for the quarter ended March 31, 1997 was $.2 million as
compared with $.01 million for the same period in 1996. This increase is
principally attributable to the increase in interest income from the investment
of the additional cash available as a result of the Company's initial public
offering in the second quarter of 1996.
As a result to the foregoing factors, the net loss for the quarter
ended March 31, 1997 increased to $1.4 million, as compared with a net loss of
$.7 million for the same period in 1996.
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Liquidity and Capital Resources
Accounts receivable increased $3.3 million due to higher sales in
March, 1997 as compared with December, 1996 and customary extended credit terms
granted customers for orders related to the new WILLOW LAKE (TM) and COLOR SOFT
(TM) product lines.
Inventory levels increased $1.8 million at March 31, 1997 compared with
December 31, 1996 as the company was building its inventory for the launch of
the WILLOW LAKE(TM) product line.
The amount outstanding on the Company's revolving line of credit
increased to $13.6 million at March 31, 1997 as compared to $9.8 million at
December 31, 1996 principally due to the increase in accounts receivable and
inventory.
The Company's launch of WILLOW LAKE(TM) as well as the introduction of
other new products in 1997 will be supported by major marketing campaigns which
include advertising and consumer promotions. In addition the new products will
require the Company to increase its inventory level as compared with December
31, 1996 and to give extended credit terms. The funds required for the marketing
campaigns, increased inventory levels and extended credit terms are expected to
come primarily from working capital and the Company's line of credit facility.
The Company expects to increase this facility in May 1997 from approximately
$20.0 million to $27.0 million but no assurance can be made that Norwest will
agree to an increase.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders.
On March 5, 1997, the Company mailed to all stockholders of record as of March
3, 1997 an Information Statement and an Action by Written Consent of
Stockholders. The proposal submitted for written consent was to amend Article
First of the Company's Certificate of Incorporation to change the name of the
corporation to The Lamaur Corporation from Electronic Hair Styling, Inc. The
amendment changing the name was effective March 26, 1997.
The number of shares of Common Stock consenting to the proposal was 3,328,292
(58.8% of the Common Stock) and the number of shares of Preferred Stock
consenting to the proposal was 1,763,500 (100% of the Preferred Stock). The
Preferred Stock was entitled to 1,163,910 votes based upon the conversion ratio
of 0.66 shares of Common Stock for each share of Preferred Stock. The total
voting power of the Company consenting to the proposal was 4,492,202 votes
representing 65.8% of the voting power of the Company.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11.1..... Statement of computation of loss per share
27.1..... Financial Data Schedule
(b) Reports on Form 8-K. None.
<PAGE>
SIGNATURE
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.
THE LAMAUR CORPORATION
(Registrant)
DATE: May 15, 1997 /s/ John D. Hellmann
Vice President-Finance and Chief Financial
Officer (Principal Financial and Accounting
Officer)
Exhibit 11.1
THE LAMAUR CORPORATION
STATEMENT OF COMPUTATION OF LOSS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
1997 1996
-----------------------
Net Loss $ (1,437) $ (723)
Dividends on Series B Preferred Stock (100) -
-------- --------
Net Loss Available to Common Shareholders $ (1,537) $ (723)
======== ========
Weighted Average Shares Outstanding 5,646 2,961
Incremental Shares from the Exercise of Warrants and
Options (1) 181 465
Shares Issued Upon the Conversion of Series A
Preferred Stock 660 660
-------- --------
Total Weighted Average Common and Common Equivalent
Shares Outstanding 6,487 4,086
-------- --------
Net Loss per Share $ (.24) $ (.18)
======== ========
(1) In accordance with the rules of the Securities and Exchange Commission,
common stock and common stock equivalents issued within one year of an initial
public offering are to be included in the calculation of weighted average common
and common stock equivalent shares outstanding for all periods presented using
the treasury stock method, even though they are anti-dilutive in loss periods.
(2) Fully diluted earnings per share is not presented since it is anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
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<CIK> 0001011154
<NAME> The Lamaur Corporation
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<CASH> 7528
<SECURITIES> 0
<RECEIVABLES> 22892
<ALLOWANCES> 948
<INVENTORY> 13454
<CURRENT-ASSETS> 43324
<PP&E> 20349
<DEPRECIATION> 1798
<TOTAL-ASSETS> 62064
<CURRENT-LIABILITIES> 14405
<BONDS> 18859
0
13500
<COMMON> 57
<OTHER-SE> 15243
<TOTAL-LIABILITY-AND-EQUITY> 62064
<SALES> 29213
<TOTAL-REVENUES> 29213
<CGS> 17316
<TOTAL-COSTS> 17316
<OTHER-EXPENSES> 13128
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<INCOME-PRETAX> (1437)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1437)
<EPS-PRIMARY> 0.24
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