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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 1998
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Commission File Number 0-28174
The Lamaur Corporation
(Exact name of registrant as specified in its charter)
Delaware 68-0301547
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Lovell Avenue, Mill Valley CA 94941
(Address of principal executive offices) (Zip Code)
(415) 380-8200
(Registrants 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 October 31, 1998, there were 5,894,468 shares of the Registrants $.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. This Form 10-Q includes forward-looking
statements including but not limited to those regarding future performance of
the retail brands, the Companys ability to attain any particular level of sales
or to be profitable in the future, the Companys ability to meet working capital
requirements, the Companys ability to be in compliance with its loan agreement,
and the Companys expectations regarding the sale of assets or its ability to
achieve other strategic initiatives. These statements involve known and unknown
risks and uncertainties that may cause the Companys 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
Companys 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 Companys filings with the Securities and Exchange
Commission.
<PAGE>
<TABLE>
<CAPTION>
THE LAMAUR CORPORATION
Index to Form 10-Q
September 30, 1998
Page
No.
<S> <C>
Part I - Financial Information
Item 1. Condensed Financial Statements (Unaudited)
Balance Sheets as of September 30, 1998 and December 31, 1997 4
Statements of Operations for the Three and Nine Months Ended 5
September 30, 1998 and 1997
Statements of Cash Flows for the Nine Months Ended 6
September 30, 1998 and 1997
Notes to Condensed Financial Statements 7
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations for the Three and Nine Months Ended September 30, 1998 and 1997 8
Part II - Other Information 12
Signature 13
</TABLE>
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
<TABLE>
<CAPTION>
THE LAMAUR CORPORATION
CONDENSED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
September 30, December 31,
1998 1997
----------------- ----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 386 $ 6,465
Restricted cash 500 -
Receivables from DowBrands - 741
Accounts receivable, net 9,929 15,943
Inventories 9,566 15,523
Prepaid expenses and other current assets 606 453
----------------- ----------------
Total current assets 20,987 39,125
Property, Plant and Equipment, Net 17,921 19,131
Other Assets 38 70
----------------- ----------------
Total Assets $ 38,946 $ 58,326
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 11,665 $ 14,592
Accrued expenses 3,042 4,666
Accrued salaries, wages and employee-related expenses 1,418 2,211
Current portion of long-term debt 550 1,612
Payables to related parties - 250
----------------- ----------------
Total current liabilities 16,675 23,331
Long-Term Debt 7,779 23,546
Related Party Obligations - 500
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 September 30, 1998 and December 31, 1997.
($10.0 million liquidation preference) 8,500 8,500
Series B Preferred stock, $.01 par value, 763,500 shares issued
and outstanding at September 30, 1998 and December 31, 1997.
($5.0 million liquidation preference) 5,000 5,000
Common stock, $.01 par value, 12,000,000 shares authorized,
5,894,468 and 5,747,544 shares issued and outstanding at
September 30, 1998 and December 31, 1997, respectively. 59 57
Additional paid-in-capital 20,452 19,852
Stock subscriptions receivable (50) (50)
Accumulated deficit (19,469) (22,410)
----------------- ----------------
Total stockholders' equity 14,492 10,949
----------------- ----------------
Total Liabilities and Stockholders' Equity $ 38,946 $ 58,326
================= ================
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE LAMAUR CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net Sales $15,004 $27,308 $57,481 $78,989
Net Sales to DowBrands - 4,684 - 12,732
------------- ------------ ------------ -------------
Total Net Sales 15,004 31,992 57,481 91,721
Cost of Goods Sold 8,966 18,441 33,433 53,825
------------- ------------ ------------ -------------
Gross Margin 6,038 13,551 24,048 37,896
Selling, General and Administrative Expenses 7,120 17,928 24,865 44,487
------------- ------------ ------------ -------------
Operating Loss (1,082) (4,377) (817) (6,591)
Interest Expense (418) (527) (1,821) (1,360)
Other Income 89 38 133 319
Gain on sale of professional salon brands 5,446 - 5,446 -
------------- ------------ ------------ -------------
Net Income (Loss) 4,035 (4,866) 2,941 (7,632)
Dividends on Series B Preferred Stock (100) (100) (300) (300)
------------- ------------ ------------ -------------
Net Income (Loss) Available to Common Shareholders $3,935 $ (4,966) $2,641 $ (7,932)
============= ============ ============ =============
Basic Income (Loss) per Common Share $ 0.67 $ (0.87) $ 0.45 $ (1.40)
============= ============ ============ =============
Average Number of Common Shares Outstanding - Basic 5,888 5,699 5,839 5,674
============= ============ ============ =============
Diluted Income (Loss) per Common Share $ 0.57 $ (0.87) $ 0.41 $ (1.40)
============= ============ ============ =============
Average Number of Common Shares Outstanding - Diluted 7,052 5,699 6,499 5,674
============= ============ ============ =============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE LAMAUR CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
--------------------------------------
1998 1997
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 2,941 $ (7,632)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Gain on sale of professional salon brands (5,446) -
Utilization of DowBrands credits - (1,125)
Loss on disposal of assets 6 44
Depreciation and amortization 1,537 1,182
Effect of changes in:
Receivables 6,630 (1,583)
Inventories 1,675 (2,326)
Prepaid expenses and other assets (153) (4,376)
Payables (3,227) 7,084
Accrued expenses (2,668) (3,232)
------------------ ------------------
Net cash provided by (used in) operating activities 1,295 (11,964)
Cash Flows From Investing Activities:
Additions to property, plant and equipment (575) (2,296)
Proceeds from sale of assets 10,505 16
------------------ ------------------
Net cash provided by (used in) investing activities 9,930 (2,280)
Cash Flows From Financing Activities:
Borrowings (repayments) under revolving credit agreement, net (10,822) 6,214
Borrowings of long-term debt - 3,842
Repayments of long-term debt (6,007) (1,091)
Proceeds from sales of common stock, net 25 132
Payment of preferred dividends - (400)
------------------ ------------------
Net cash provided by (used in) financing activities (16,804) 8,697
------------------ ------------------
Net Decrease in Cash and Cash Equivalents (5,579) (5,547)
Cash and Cash Equivalents at Beginning of Period 6,465 12,081
================== ==================
Cash and Cash Equivalents at End of Period $ 886 $ 6,534
================== ==================
See notes to financial statements
</TABLE>
<PAGE>
THE LAMAUR CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND OPERATIONS
The Lamaur Corporation (the Company) develops, formulates, manufactures
and markets personal hair care products, consisting of shampoos, conditioners,
hair sprays and other styling aids for consumer hair care markets. In July 1998,
the Company sold its professional salon brands and related inventory to Zotos
International, Inc., a subsidiary of Shiseido Co., Ltd., Tokyo, Japan (Zotos)
for net proceeds of $10.4 million of which $0.5 million is being held in escrow
until January 31, 1999. In connection with this sale, the Company recorded a
pre-tax gain of $5.4 million.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed financial statements are unaudited and include
all adjustments, which consist of only normal recurring accruals, that
management considers 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 Corporations Annual Report on Form
10-K for the year ended December 31, 1997. Results for interim periods are not
necessarily indicative of results for the full year.
Earnings Per Share Basic EPS is calculated using income or loss available
to common shareholders divided by the weighted average of common shares
outstanding during the year. Diluted EPS is similar to Basic EPS except that the
weighted average common shares outstanding is increased to include the number of
additional common shares that would have been outstanding if the dilutive
outstanding items, such as options had been exercised. The treasury stock method
is used to calculate dilutive shares which reduces the gross number of dilutive
shares by the number of shares purchasable from the proceeds of the options
assumed to be exercised. The following table sets forth the calculations of
Basic and Diluted EPS for the three and nine months ended September 30, 1998 and
1997:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------------
---------------------------------------------------------
1998 1997 1998 1997
------------- ------------- -------------- -------------
------------------------------------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Basic Earnings per Share:
Net Income (Loss) $ 4,035 $ (4,866) $ 2,941 $ (7,632)
Less: Dividends on Series B Preferred Stock (100) (100) (300) (300)
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
Net Income (Loss) Available to Common Shareholders $ 3,935 $ (4,966) $ 2,641 $ (7,932)
============= ============= ============== =============
============= ============= ============== =============
Average Number of Common Shares Outstanding - Basic 5,888 5,699 5,839 5,674
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
Basic Income (Loss) per Common Share $ 0.67 $ (0.87) $ 0.45 $ (1.40)
============= ============= ============== =============
============= ============= ============== =============
Diluted Earnings per Share:
Net Income (Loss) $ 4,035 $ (4,866) $ 2,941 $ (7,632)
Less: Dividends on Series B Preferred Stock - (100) (300) (300)
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
Net Income (Loss) Available to Common Shareholders $ 4,035 $ (4,966) $ 2,641 $ (7,932)
============= ============= ============== =============
============= ============= ============== =============
Weighted Average Shares:
Outstanding 5,888 5,699 5,839 5,674
Dilutive Shares Issuable in Connection with:
Conversion of Series A Preferred Stock 660 - 660 -
Conversion of Series B Preferred Stock 504 - - -
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
Average Number of Common Shares Outstanding - Diluted 7,052 5,699 6,499 5,674
------------- ------------- -------------- -------------
============= ============= ============== =============
Diluted Income (Loss) per Common Share $ 0.57 $ (0.87) $ 0.41 $ (1.40)
============= ============= ============== =============
============= ============= ============== =============
</TABLE>
<PAGE>
Comprehensive Income Effective January 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting
Comprehensive Income. SFAS 130 requires the disclosure of comprehensive income
and its components in the general-purpose financial statements. For the periods
ended September 30, 1998 and 1997, the Company did not engage in transactions
related to foreign currency translation, unrealized gains in securities, or
minimum pension liability adjustments. Accordingly, comprehensive income equals
net income.
Disclosures About Segments of an Enterprise and Related Information In
June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), Disclosures about Segments
of an Enterprise and Related Information, which is effective for the Company
for the year ended December 31, 1998. SFAS 131 redefines how operating segments
are determined and requires disclosure of certain financial and descriptive
information about a companys operating segments. Adoption of this statement
will not impact the Companys financial position, results of operations or cash
flows, and any effect will be limited to the form and content of disclosures.
Reclassification Certain reclassifications have been made to the
accompanying prior year financial statements in order to conform with the 1998
presentation. These reclassifications have no effect on net income or
stockholders equity as previously reported.
Inventories are stated at the lower of weighted average cost or market and
include the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------------- -----------------
(In thousands)
<S> <C> <C>
Finished goods $ 4,360 $ 9,233
Work in process 90 93
Raw materials 5,116 6,197
----------------- -----------------
Total $ 9,566 $ 15,523
================= =================
</TABLE>
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
Three months and nine months ended September 30, 1998 compared to the three
months and nine months ended September 30, 1997.
Net sales for the nine months ended September 30, 1998 were $57.5 million
compared with $91.7 million for the same period in 1997, a decrease of $34.2
million or 37.3%. Net sales for the three months ended September 30, 1998 were
$15.0 million compared with $32.0 million for the same period in 1997, a
decrease of $17.0 million or 53.1%. The decrease in net sales for the nine and
three months ended September 30, 1998 is principally due to the decline in sales
of the Companys retail brands, the decline in sales of contract manufacturing
as a result of the expiration of the manufacturing agreement with DowBrands in
November 1997, and the decline in sales of the professional salon brands. There
were no sales to DowBrands for the nine months or three months ended September
30, 1998 as compared with $12.7 million and $4.7 million, respectively, for the
same periods in 1997. Style, Perma Soft, Salon Style, Color Soft, and Willow
Lake (retail brands) had sales declines of $20.1 million, and the professional
salon brands had sales declines of $5.2 million during the nine months ended
September 30, 1998, and declines of $10.0 million, and $3.7 million,
respectively, during the three months ended September 30, 1998 as compared with
the same periods in 1997. Style, Perma Soft, and Salon Style have continued to
decline in sales since management began its turnaround efforts in the first
quarter of 1996. Management believes that sales of these and the Companys other
retail brands are likely to continue to decline but at a lesser rate. The
decrease in net sales of the professional salon brands for the nine months and
three months ended September 30, 1998 as compared with the same periods in 1997
is principally attributable to the sale of these brands to Zotos on July 31,
1998. Beginning in August 1998 and continuing for six months, the Company will
manufacture these professional salon brands for Zotos. However, net sales from
these brands will continue to decline as compared to 1997 since such brands may
only be sold to Zotos and are sold on a contract basis which provides for a
lower markup over cost.
<PAGE>
Gross margin as a percentage of net sales was 41.8% for the nine months
ended September 30, 1998, as compared with 41.3% for the same period in 1997.
Gross margin as a percentage of net sales was 40.2% for the three months ended
September 30, 1998 as compared with 42.4% for the same period in 1997. The
reduction in gross margin as a percentage of net sales for the three months
ended September 30, 1998 was principally due to the sale of lower-margin
promotional merchandise for the Willow Lake line.
Selling, general and administrative (SG&A) expenses were $24.9 million or
43.3% of net sales for the nine months ended September 30, 1998, as compared
with $44.5 million or 48.5% of net sales for the same period last year, a
decrease of $19.6 million. SG&A expenses were $7.1 million or 47.5% of net sales
for the three months ended September 30, 1998, as compared with $17.9 million or
56.0% of net sales for the same period last year, a decrease of $10.8 million.
The decreases are principally attributed to reduced marketing expenses of $16.3
million and $8.9 million for the nine and three months ended September 30, 1998,
respectively, and reduced freight and brokerage as a result of the decrease in
sales. In addition, personnel, travel and other expenses declined as a result of
the Companys cost cutting efforts and the sale of the professional salon brands
to Zotos. In 1997 the Company increased its marketing to support the launch of
Willow Lake, and in 1998 such support was substantially reduced. In addition
the Company has reduced marketing expenditures for other brands which have
continued to experience sales declines. The lower level of marketing support in
1998 is a result of the Companys limited working capital. Because of the
Companys limited working capital and the competitive environment for hair care
products there can be no assurance concerning the future performance of Willow
Lake and other brands or the Companys ability to attain any particular level
of sales or to be profitable in the future with the lower level of marketing.
Interest expense increased to $1.8 million for the nine months ended
September 30, 1998, as compared with $1.4 million in the same period last year.
The increase is principally due to the increased fees and interest rates charged
by Norwest Business Credit, Inc. (Norwest) in conjunction with certain loan
amendments and the pay down of the loan in July 1998, as well as interest on
certain past due accounts payable. Interest expense decreased to $0.4 million
for the three months ended September 30, 1998 as compared with $0.5 million in
the same period last year. This decrease is due in part to lower borrowings
under the Companys revolving line of credit and term loan facility with
Norwest. In July 1998, the Company used a portion of the proceeds from the sale
of its professional salon brands to Zotos to pay down its revolving line of
credit and term loan facility.
On July 31, 1998, the Company sold its professional salon brands, including
trade names and inventory ($4.3 million) for net proceeds of $10.4 million to
Zotos.This transaction resulted in a pre-tax gain of approximately $5.4 million.
As a result of the foregoing factors, the net income for the nine and three
months ended September 30, 1998 was $2.9 million and $4.0 million compared to
net losses of $7.6 million and $4.9 million for the same periods in 1997.
Liquidity and Capital Resources
The Companys net working capital decreased by $11.5 million, from $15.8
million at December 31, 1997 to $4.3 million at September 30, 1998.
As of September 30, 1998, the amounts outstanding under the Companys
revolving and term loan facilities were $6.8 million and $0.3 million,
respectively, as compared with $17.7 million and $6.2 million, respectively, as
of December 31, 1997. On July 31, 1998, the Company used a portion of the $10.4
million net proceeds from the sale of its professional salon brands to pay down
its revolving line of credit and term loan facility. In addition, in April 1998
the Company reduced its investments in US Treasury Securities from approximately
$4.3 million to zero in accordance with the March 31, 1998 Amended Loan
Agreement with Norwest. These funds were used to pay down the revolving loan
facility. The amendment also provided for setting 1998 financial covenants on
the credit facility and increased the interest rate on the revolving line of
credit from 1.5% to 2.5% above the base rate and increased the interest rate on
the term loan from 1.75% to 2.75% above the base rate. The interest rates on the
loans are variable and are tied to Norwest Banks base rate which was 8.25 % at
September 30, 1998. As of September 30, 1998, the interest rates on the
revolving line of credit and the term loan facility were 10.75% and 11.0%,
respectively. In addition, Norwest lowered the advance rates on eligible
receivables by five percentage points and eligible inventory by six percentage
points. The revolving line of credit is secured by all of the assets of the
Company and is payable in full by November 15, 2000. As of September 30, 1998
the Company was in compliance with its financial loan covenants. While the
Company expects to remain in compliance with such covenants, no assurance can be
given that such compliance will continue.
<PAGE>
In October 1998, the Company entered into an amendment to its credit and
security agreements with Norwest which provided for an additional advance to the
Company of approximately $2.0 million. The advance is secured by the
Companys real estate. The interest rate on the real estate note is variable and
is 2.75% above the banks base rate. The principal is due upon demand and is
payable in full by April 16, 1999. The Company incurred a fee of $75,000 in
conjunction with this loan amendment.
In March 1998, Intertec Holdings, L.P. purchased 109,581 shares of the
Companys common stock at $8.00 per share under a stock purchase agreement
entered into in March 1996 between the Company and Intertec Holdings, L.P.. This
stock purchase fulfills the obligation of Intertec Holdings, L.P. to purchase a
total of 146,107 shares under the agreement. With the issuance of these shares,
the Company paid the remaining balance of $750,000 on a note payable to Intertec
Holdings, L.P.. This note was for a license fee for proprietary technology
purchased from Intertec Ltd., a limited partnership controlled by the Companys
Chairman of the Board.
On July 31, 1998 the Company sold its professional salon brands, including
trade names and inventory ($4.3 million) for net proceeds of $10.4 million. A
portion of the selling price, $0.5 million, will be held in an escrow account
for six months in order to provide funds for product returns and indemnity
payments that the Company may become obligated to make to Zotos. The proceeds
from this sale were used to pay down a portion of the Companys loan facility
with Norwest, reduce past due obligations to other creditors and for working
capital.
Total accounts payable exceeding their normal payment terms were
approximately $6.6 million as of September 30, 1998. Because the Company has
announced its intent to obtain financing, and or establish an alliance through a
merger or additional sale of assets, major trade creditors and other creditors
have extended their normal terms to allow the Company additional time to make
payments. In August 1998, the Company used a portion of the proceeds from the
sale of its professional salon brands to reduce its extended accounts payable.
The Company is operating its business to preserve working capital in order to
pay the Companys current and extended obligations. To date the Company has been
able to make timely shipments to its customers.
As of September 30, 1998, the Company was $500,000 in arrears on the
payment of dividends on its Series B preferred stock. The preferred stock
provides for an annual dividend of $400,000, payable in quarterly installments.
The Companys ability to continue operations is dependent upon obtaining
additional financing, which could occur as the result of a sale or a
restructuring and refinancing of its manufacturing operation. The Company is
actively pursuing these alternatives. No assurance can be given as to the timing
of such financing or that a financing will be concluded. The Company is
developing plans to restructure and continue its Retail operations. No assurance
can be given that such restructuring will be successfully accomplished.
Year 2000 Compliance
Many computer systems were not designed to properly handle dates beyond the
year 1999. Additionally, these systems may not properly handle certain dates in
1999. Failure to process dates properly could result in failure or disruption of
the Companys information systems and/or processing equipment. To be Year 2000
compliant, computer systems must correctly process dates before and after the
Year 2000, recognize the Year 2000 as a leap year, accept and display dates
unambiguously and correctly process dates for non-date functions such as
archiving.
Disruptions to the Companys operations may also occur if key suppliers or
customers experience disruptions in their ability to purchase, supply or
transact with the Company due to Year 2000 issues. The Year 2000 readiness
within infrastructure suppliers (utilities, government agencies such as customs,
and shipping organizations) will be critical to the Companys ability to avoid
disruption of its operations.
The Company has determined that it would be required to replace or modify
portions of its business application software so that its computer systems would
properly utilize dates beyond December 31, 1999. As a result, the Company has
been modifying its computer information systems to ensure the proper processing
of transactions relating to the Year 2000 and beyond. The Company is also
reviewing its computer-dependent manufacturing activities to determine the
necessary hardware and software changes. The Company intends to use internal
resources to implement, replace and test software and related assets affected by
the Year 2000 issue.
The Company will be working with key suppliers and customers to determine
whether the suppliers operations and the products and services that they
provide are Year 2000 capable or to monitor their progress toward Year 2000
compliance.
<PAGE>
The Company will perform remediation procedures concurrent with its
assessment planning. The Company currently believes that the remediation costs
of the Year 2000 issue will not be material to the Companys results of
operations or financial position. Cumulatively through September 30, 1998 the
Company has not incurred a material amount of remediation expenses. While the
Company currently expects that the Year 2000 issue will not pose significant
operational problems, delays in adequately addressing Year 2000 issues, or a
failure to fully identify all Year 2000 dependencies in the Companys systems
and in the systems of its suppliers, customers and financial institutions could
have material adverse consequences, including delays in the production, delivery
or sale of products. In addition, time and cost estimates are based on currently
available information and are managements best estimates. However, there is no
guarantee that these estimates will be achieved, and actual results may differ
materially from those anticipated. Therefore, the Company is developing
contingency plans for continuing operations in the event such problems arise.
The Company intends to complete the contingency planning phase of its Year 2000
readiness in the first half of 1999.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On November 2, 1998, a class action and derivative lawsuit was filed by the
stockholders (on behalf of themselves and the Company) in the Delaware Court of
Chancery in and for New Castle County alleging that the defendant Board of
Directors breached their fiduciary duties to the Company and failed to disclose
certain information in the Companys 1998 Proxy Statement. Plaintiffs seek
injunctive relief, damages, a recission of all actions approved at the November
2, 1998 Annual Meeting and a revised Proxy Statement.
The Company believes the lawsuit is without merit and will defend the
action in the best interest of the stockholders.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
On September 30, 1998, the Company failed to pay a dividend of $100,000 on
its Series B Preferred Stock and is in arrears in the aggregate amount of
$500,000.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
On October 2, 1998 the Company reported in its Proxy Statement that the
Audit Committee retained former Supreme Court Judge Charles Renfrew as
Independent Counsel to review Officers, Directors and Related Party
Transactions. Based upon his review the Judge reported no wrongdoing.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
On August 17, 1998 the Company filed a report on Form 8-K reporting under
Item number 2 that on July 31, 1998, the Registrant sold its professional salon
brands to Zotos for $11.0 million. Included in this Form 8-K were financial
statements and exhibits reported under Item 7.
<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: November 16, 1998 /s/ John D. Hellmann
Vice President - Finance and Chief Financial
Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001011154
<NAME> The Lamaur Corporation
<MULTIPLIER> 1000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Sep-30-1998
<EXCHANGE-RATE> 1
<CASH> 886
<SECURITIES> 0
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0
13,500
<COMMON> 59
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<CGS> 33,433
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<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.41
</TABLE>
