FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1995
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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 1-5292
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MEM COMPANY, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 13-5546930
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State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
NORTHVALE, NEW JERSEY 07647
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(Address of principal executive offices, zip code)
(201) 767-0100
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
2,580,184 shares of Common Stock were outstanding at June 30, 1995.
<PAGE>
PART I
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995 AND DECEMBER 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
6/30/95 12/31/94
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<S> <C> <C>
ASSETS
Current Assets:
Cash ........................................... $ 298,360 $ 1,128,897
Accounts receivable, less allowance for
doubtful accounts of $391,080 at 6/30/95
and $661,654 at 12/31/94 .................... 5,535,395 12,843,943
Inventories at lower of cost (first-in,
first-out) or market:
Finished goods .............................. 9,388,256 6,095,908
Raw materials and work in process ........... 12,035,889 9,228,083
Prepaid expenses ............................... 1,368,980 1,163,589
------------ ------------
Total current assets ........................... 28,626,880 30,460,420
Property, plant and equipment at cost .......... 18,653,339 18,112,508
Less accumulated depreciation .................. (13,356,564) (12,788,644)
------------ ------------
Net property, plant and equipment .............. 5,296,775 5,323,864
Other Assets:
Advance royalty payments - net ................. 638,730 710,010
Other Assets ................................... 207,567 193,729
Intangibles - net .............................. 10,336,826 10,572,940
------------ ------------
Total Assets ................................... $ 45,106,778 $ 47,260,963
============ ============
</TABLE>
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<PAGE>
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995 AND DECEMBER 31, 1994 (Unaudited)
(Continued)
<TABLE>
<CAPTION>
6/30/95 12/31/94
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans payable to financial institutions and
banks ....................................... $ 8,826,181 $ 6,528,016
Accounts payable ............................... 5,228,387 4,488,160
Accrued expenses ............................... 1,325,396 2,308,387
Notes payable-current portion .................. 1,534,489 1,534,066
------------ ------------
Total current liabilities ...................... 16,914,453 14,858,629
Long term notes ................................ 3,831,740 4,906,624
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $.05 par value: 6,000,000 shares
authorized, 3,000,000 shares issued ......... 150,000 150,000
Additional paid-in capital ..................... 3,090,110 3,090,110
Retained earnings .............................. 26,246,762 29,442,756
Less: Common stock in treasury at cost ........ (4,607,180) (4,607,180)
: Translation adjustment account .......... (519,107) (579,976)
------------ ------------
Total stockholders' equity ..................... 24,360,585 27,495,710
------------ ------------
Total Liabilities and Stockholders' Equity ..... $ 45,106,778 $ 47,260,963
============ ============
</TABLE>
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<PAGE>
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
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QUARTER YEAR TO DATE QUARTER YEAR TO DATE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales ............................. $ 4,703,688 $ 10,985,222 $ 5,647,318 $ 10,888,367
Cost of sales ......................... 2,733,824 6,202,368 3,776,926 6,858,643
Selling and shipping exp. ............. 2,527,112 4,807,886 2,619,723 4,707,538
General and
administrative expense .............. 1,226,176 2,441,254 1,248,831 2,432,844
------------ ------------ ------------ ------------
(1,783,424) (2,466,286) (1,998,162) (3,110,658)
Other income (expense):
Royalties, interest and
other income ........................ 72,405 177,170 93,807 218,572
Amortization of
intangibles ......................... (119,358) (238,689) (49,369) (63,761)
Interest expense ...................... (323,900) (587,894) (141,531) (198,338)
Financing expense ..................... (47,898) (80,295) (33,975) (61,575)
------------ ------------ ------------ ------------
(Loss) before income taxes ............ (2,202,175) (3,195,994) (2,129,230) (3,215,760)
Income tax (benefit) .................. -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) ..................... $ (2,202,175) $ (3,195,994) $ (2,129,230) $ (3,215,760)
============ ============ ============ ============
Net (loss) per share .................. $ (.85) $ (1.24) $ (.83) $ (1.25)
============ ============ ============ ============
Average number of
shares outstanding .................. 2,580,184 2,580,184 2,571,521 2,571,521
</TABLE>
Net income (loss) per share was determined by dividing net income (loss)
by the average number of shares outstanding during the respective period.
-4-
<PAGE>
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) ......................... $(3,195,994) $(3,215,760)
Depreciation and amortization ............. 844,071 733,207
Provision for losses on accounts receivable 108,942 87,977
(Increase) decrease in accounts receivable 7,226,063 4,924,821
(Increase) decrease in inventory .......... (6,047,332) (6,626,958)
(Increase) decrease in other current assets (204,000) (361,523)
(Increase) decrease in other assets ....... (13,838) (13,838)
Increase (decrease) in accounts payable ... 729,137 3,805,729
Increase (decrease) in accrued expenses ... (988,162) (293,191)
----------- -----------
Net cash (used in) operating
activities ............................. (1,541,113) (959,536)
Cash Flows from Investing Activities
Acquisition of trademark .................. -- (8,253,164)
Additions to plant and equipment .......... (496,887) (321,487)
Collection of note receivable ............. -- 127,266
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Net cash (used in) investing
activities ............................. (496,887) (8,447,385)
Cash Flows from Financing Activities
Short-term borrowings ..................... 8,611,394 733,027
(Repayments of) short-term borrowings ..... (6,316,076) (657,218)
Proceeds from long-term notes ............. -- 9,012,000
(Payments of) long-term notes ............. (1,089,159) (126,461)
----------- -----------
Net cash provided by financing
activities ................................ 1,206,159 8,961,348
Effect of exchange rate changes on cash ... 1,304 47,041
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Net increase (decrease) in cash ........... (830,537) (398,532)
Cash at the beginning of the year ......... 1,128,897 992,019
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Cash at the end of the period ............. $ 298,360 $ 593,487
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</TABLE>
The information on pages 2-5 reflects all adjustments of a normal recurring
nature which the Company considers necessary for a fair presentation of the
results for those periods.
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<PAGE>
MANAGEMENT'S DISCUSSION and ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30, 1995 and 1994
Net sales for the first six months were modestly higher than in 1994.
Gross sales increased by $943,000. Sales of British Sterling and Timberline,
which were sold beginning in the second half of 1994, were approximately
$2,500,000 this year and these sales were partially offset by declines in sales
of Love's Baby Soft and English Leather products. Returns and allowances
increased by $846,000 as a result of returns related to the higher level of
sales during the 1994 holiday season. Sales of Tinkerbell products in the United
Kingdom continued to grow, and were modestly behind 1994 levels in the United
States. Our Canadian business improved over 1994 primarily as a result of lower
returns in 1995. Modest sales price increases on various products were effective
at the beginning of 1995. The effects of inflation and exchange rate
fluctuations were not material.
Cost of sales decreased from 63% of sales in 1994 to 57% in 1995. This
resulted from lower cost of goods of the Timberline brand than other products,
the effects of lower anticipated returns on current sales volume, efficiencies
from higher levels of production and the sales price increases. Selling,
shipping and general and administrative expenses were about the same as in 1994,
and marketing expenses increased by approximately $135,000.
Royalties, interest and other income declined principally due to the
absence of interest income from a note receivable which was paid in full in
October 1994. Amortization of intangibles increased $175,000 as a result of the
inclusion of amortization of the British Sterling trademark for six months in
1995 compared to one month in the first half of 1994. Interest expense increased
$185,000 as a result of the long term notes issued in connection with the
British Sterling acquisition in May, 1994 and increased $205,000 as a result of
higher short term loans outstanding in 1995 to finance higher receivables and
inventories. In total, the improvement in operating margins was offset by the
higher non-operating costs incurred as a result of the British Sterling
acquisition, resulting in a loss which was basically unchanged from 1994. The
Company has significant tax loss carryforwards available to offset future
taxable income.
Quarter Ended June 30, 1995 and 1994
Net sales declined by $944,000 as a result of a decline in gross sales of
$130,000 and an increase in returns and allowances of $814,000. The reasons for
these changes are substantially the same as those mentioned in the six months
discussion. Cost of sales declined in relation to sales from 67% in 1994 to 58%
in 1995. This improvement resulted from lower manufacturing costs and from sales
price increases instituted at the beginning of the year. Shipping and selling
expenses declined $167,000, marketing expenses increased $74,000 and general and
administrative expenses declined modestly. The reasons for changes in interest
income, intangibles and interest expense are substantially the same as discussed
previously.
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<PAGE>
Liquidity and Capital Resources
In May 1994, the Company acquired the British Sterling trademarks and
related assets and inventory for a total purchase price of $9,182,000, of which
$8,145,000 was for the trademarks, $1,029,000 for inventories and $8,000 for
fixed assets. The purchase price was paid with $7,250,000 in cash, consisting of
$200,000 from the Company's working capital and $7,050,000 borrowed under a
5-year term loan added to the Company's existing revolving credit facility, and
with an unsecured $1,932,000 promissory note payable to the seller over three
years at 8% interest. Other costs of the acquisition were $196,215.
The Company's existing revolving credit facility with Fremont Financial
Corporation was amended in May 1994 to increase the facility from $15 to $17.5
million, provide for the term loan and extend the maturity of the agreement from
1996 to 1998. The term loan is payable in equal monthly installments of
principal over five years, with interest at prime plus 2.5%. The Company was
also the holder of a $2,465,000 note receivable from an unrelated party which
was paid in October 1994. The proceeds of this note were applied to reduce the
term loan by reducing each of the scheduled monthly payments.
The Company's business is highly seasonal. In the first nine months of
the year, cash is required to buy and manufacture inventories. The peak shipping
months are from August through November and funds are required to finance
accounts receivable from shipment date to December and January, when the Company
receives significant cash collections. To finance these needs, the Company uses
its working capital, which was $15,602,000 at the end of 1994, and a revolving
credit agreement with financial institutions. At June 30, 1995, $3,412,000 was
outstanding on the term loan and $8,301,000 was outstanding under working
capital loans.
In the first half of the year, the Company collects accounts receivable
from the previous Holiday season. This is the reason that the cash flow used in
operations is significantly less than the loss for the period. Initial positive
cash flow is used to repay short-term borrowings and then short-term borrowings
are utilized. In 1995, accounts receivable decreased by $7,226,000 compared to
$4,925,000 in 1994. The increase is due to the higher level of receivables
outstanding at December 31, 1994, compared to the prior year, offset by lower
sales in the second quarter of 1995. The smaller increase in accounts payable is
related to the timing of purchases, the majority of which were made earlier in
1995 than in 1994. The increase in short-term borrowings relates to the timing
of purchases and the changes in accounts payable.
The financing agreement contains a prohibition on the payment of
dividends if the Company operates at a loss. There are no material commitments
for property, plant and equipment expenditures.
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<PAGE>
PART II
MEM COMPANY, INC.
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 27, 1995, an annual meeting of shareholders of the Company was
held at which (i) directors were elected to serve until their successors shall
have been elected and shall have qualified, and (ii) the selection of Ernst &
Young LLP as independent auditors for the Company for the fiscal year ending
December 31, 1995 was ratified. The number of votes cast for, against or
withheld/ abstained with regard to each nominee or matter are set forth below.
<TABLE>
<CAPTION>
Withheld/
For Against Abstained
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<S> <C> <C> <C>
Election of Directors
Elizabeth C. Mayer 2,486,390 N/A 20,546
Paul Hallingby, Jr. 2,486,690 N/A 20,246
Gay A. Mayer 2,485,243 N/A 21,693
Derek B. Van Dusen 2,486,190 N/A 20,746
Robert E. Mulcahy III 2,486,690 N/A 20,246
Laurette M. Beach 2,486,390 N/A 20,546
Ratification of Auditors 2,501,918 3,400 1,618
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
Item 6a. Exhibits - None
Item 6b. Reports - None
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.
MEM COMPANY, INC.
BY: /S/ Michael G. Kazimir, Jr.
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MICHAEL G. KAZIMIR, JR.
Executive Vice President
Duly Authorized Officer &
Chief Financial Officer
August 14, 1995
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 298,360
<SECURITIES> 0
<RECEIVABLES> 5,926,475
<ALLOWANCES> (391,080)
<INVENTORY> 21,424,145
<CURRENT-ASSETS> 28,626,880
<PP&E> 18,653,339
<DEPRECIATION> (13,356,564)
<TOTAL-ASSETS> 45,106,778
<CURRENT-LIABILITIES> 16,914,453
<BONDS> 3,831,740
<COMMON> 150,000
0
0
<OTHER-SE> 24,210,585
<TOTAL-LIABILITY-AND-EQUITY> 45,106,778
<SALES> 10,985,222
<TOTAL-REVENUES> 10,985,222
<CGS> 6,202,368
<TOTAL-COSTS> 13,451,508
<OTHER-EXPENSES> 61,519
<LOSS-PROVISION> 108,942
<INTEREST-EXPENSE> 668,189
<INCOME-PRETAX> (3,195,994)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,195,994)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,195,994)
<EPS-PRIMARY> (1.24)
<EPS-DILUTED> (1.24)
</TABLE>
