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 SEPTEMBER 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
- ------------------------------ --------------------------
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 September 30, 1995.
<PAGE>
<TABLE>
<CAPTION>
PART I
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994 (Unaudited)
9/30/95 12/31/94
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<S> <C> <C>
ASSETS
Current Assets:
Cash ........................................... $ 233,247 $ 1,128,897
Accounts receivable, less allowance for
doubtful accounts of $448,797 at 9/30/95
and $661,654 at 12/31/94 .................... 15,393,193 12,843,943
Inventories at lower of cost (first-in,
first-out) or market:
Finished goods .............................. 9,658,141 6,095,908
Raw materials and work in process ........... 10,953,682 9,228,083
Prepaid expenses ............................... 1,046,207 1,163,589
------------ ------------
Total current assets ........................... 37,284,470 30,460,420
Property, plant and equipment at cost .......... 18,969,988 18,112,508
Less accumulated depreciation .................. (13,647,869) (12,788,644)
------------ ------------
Net property, plant and equipment .............. 5,322,119 5,323,864
Other Assets:
Advance royalty payments - net ................. 603,090 710,010
Other Assets ................................... 207,583 193,729
Intangibles - net .............................. 10,219,960 10,572,940
------------ ------------
Total Assets ................................... $ 53,637,222 $ 47,260,963
============ ============
<PAGE>
<CAPTION>
PART I
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994 (Unaudited)
(Continued)
9/30/95 12/31/94
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans payable to financial institutions and
banks ....................................... $ 14,449,751 $ 6,528,016
Accounts payable ............................... 4,974,406 4,488,160
Accrued expenses ............................... 4,066,299 2,308,387
Notes payable-current portion .................. 1,534,913 1,534,066
------------ ------------
Total current liabilities ...................... 25,025,369 14,858,629
Long term notes ................................ 3,623,184 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 .............................. 26,800,798 29,442,756
Less: Common stock in treasury at cost ........ (4,607,180) (4,607,180)
: Translation adjustment account .......... (445,059) (579,976)
------------ ------------
Total stockholders' equity ..................... 24,988,669 27,495,710
------------ ------------
Total Liabilities and Stockholders' Equity ..... $ 53,637,222 $ 47,260,963
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
1995 1994
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QUARTER YEAR TO DATE QUARTER YEAR TO DATE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales ............. $ 16,699,114 $ 27,684,336 $ 19,057,188 $ 29,945,555
Cost of sales ......... 8,894,995 15,097,363 9,260,622 16,119,265
Selling and
shipping exp ......... 5,407,422 10,215,308 7,060,343 11,767,881
General and admin.
expense .............. 1,323,450 3,764,704 1,226,470 3,659,314
------------ ------------ ------------ ------------
1,073,247 (1,393,039) 1,509,753 (1,600,905)
Other income (expense):
Royalties, interest and
other income ........ 77,013 254,183 157,091 375,663
Amortization of
intangibles ......... (119,394) (358,083) (119,397) (183,158)
Interest expense ...... (440,244) (1,028,138) (345,387) (543,725)
Financing expense ..... (36,586) (116,881) (39,935) (101,510)
------------ ------------ ------------ ------------
Income (loss) before
income taxes ......... 554,036 (2,641,958) 1,162,125 (2,053,635)
Income tax (benefit) .. -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) ..... $ 554,036 $ (2,641,958) $ 1,162,125 $ (2,053,635)
============ ============ ============ ============
Net income (loss)
per share ............ $ .22 $ (1.02) $ .45 $ (.80)
============ ============ ============ ============
Average number of
shares outstanding ... 2,580,184 2,580,184 2,574,720 2,574,720
</TABLE>
Net income (loss) per share was determined by dividing net income
(loss) by the average number of shares outstanding during the
respective period.
<PAGE>
<TABLE>
<CAPTION>
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 and 1994
(Unaudited)
1995 1994
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<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) .............................. $ (2,641,958) $ (2,053,635)
Depreciation and amortization .................. 1,268,186 1,183,096
Provision for losses on accounts receivable .... 163,589 145,844
(Increase) decrease in accounts receivable ..... (2,649,881) (8,345,886)
(Increase) decrease in inventory ............... (5,208,810) (9,878,028)
(Increase) decrease in other current assets .... 118,870 (141,181)
(Increase) decrease in other assets ............ (13,854) (13,852)
Increase (decrease) in accounts payable ........ 473,229 4,972,675
Increase (decrease) in accrued expenses ........ 1,742,695 3,859,656
------------ ------------
Net cash (used in) operating
activities .................................. (6,747,934) (10,271,311)
Cash Flows from Investing Activities
Acquisition of trademark ....................... -- (8,341,215)
Additions to plant and equipment ............... (783,343) (774,526)
Collection of note receivable .................. -- 192,737
------------ ------------
Net cash (used in) investing
activities .................................. (783,343) (8,923,004)
Cash Flows from Financing Activities
Short-term borrowings .......................... 14,238,231 10,651,705
(Repayments of) short-term borrowings .......... (6,316,076) (657,218)
Proceeds from long-term notes .................. -- 8,982,000
(Payments of) long-term notes .................. (1,311,868) (483,866)
Issuance of treasury stock ..................... -- 30,330
------------ ------------
Net cash provided by financing
activities .................................. 6,610,287 18,522,951
Effect of exchange rate changes on cash ........ 25,340 15,016
------------ ------------
Net increase (decrease) in cash ................ (895,650) (656,348)
Cash at the beginning of the year .............. 1,128,897 992,019
------------ ------------
Cash at the end of the period .................. $ 233,247 $ 335,671
============ ============
</TABLE>
The information on pages 2-4 reflects all adjustments of a normal recurring
nature which the Company considers necessary for a fair presentation of the
results for those periods.
<PAGE>
MANAGEMENT'S DISCUSSION and ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 1995 and 1994
Net sales for the first nine months were 8% lower than in 1994. Gross
sales declined by $1,682,000. Sales of British Sterling, acquired in May, 1994
were $5,422,000 in 1995 and $3,092,000 in 1994. Sales of Timberline, introduced
in the second half of 1994, were $883,000 in 1995 and $3,070,000 in 1994. Sales
of English Leather and other men's products were lower by approximately
$1,045,000 and sales of Love's Baby Soft and Heaven Sent items were $780,000
lower than in 1995. Declines in Tinkerbell sales in the U.S. were offset by
strong sales growth in the United Kingdom. Returns and allowances increased by
$581,000 as a result of returns related to the higher level of sales during the
1994 holiday season and the introduction of new products in 1994. Canadian sales
were 5% lower than last year as a result of lower gross sales. 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 increased from 54% of sales in 1994 to 55% in 1995.
Efficiencies from higher levels of production, the effects of lower anticipated
returns on current sales volume and the sales price increases all contributed to
lowering the cost of goods and offset most of the gross profit loss from
substantially lower Timberline sales, which have a lower cost of goods than
other products. Selling and shipping expense declined from 39% of sales in 1994
to 37% in 1995 as a result of lower marketing expenses in 1995 for the
Timberline brand. Various general and administrative expenses increased modestly
over the prior year.
Royalties, interest and other income declined $121,000 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 nine months in
1995 compared to four months in 1994. Interest expense increased $79,000 as a
result of the long term notes issued in connection with the British Sterling
acquisition in May, 1994 and increased $405,000 as a result of higher short term
loans outstanding during 1995 to finance higher receivables and inventories
during the year and for funds utilized to repay long term notes. In total, the
operating loss declined from 1994, but the higher non-operating costs resulted
in a loss which was $588,000 greater than in 1994. The Company has significant
tax loss carryforwards available to offset future taxable income.
Quarter Ended September 30, 1995 and 1994
Net sales declined by $2,358,000 as a result of a decline in gross sales
of $2,623,000 and a decline in returns and allowances of $265,000. The decline
in gross sales is attributable to substantially lower sales of Timberline.
Modest increases in sales of British Sterling and Love's were offset by sales
decreases in English Leather and Heaven Sent. Sales of Tinkerbell were unchanged
from 1994. Sales in the U.K. showed a small increase and Canadian sales were
down 11%.
Cost of sales increased from 49% of sales to 53% in 1995 due to the
decline in sales of Timberline products, which have a lower cost of goods than
other fragrance products sold by the Company. The decline in selling and
shipping expense resulted from lower distribution expenses by $320,000 and a
decline of $1,333,000 in marketing expenses in 1995, principally related to the
Timberline brand. The reasons for changes in general and administrative
expenses, interest income and interest expense are substantially the same as
discussed previously.
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 was 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 Fremont agreement was amended as of June 1, 1995 to reduce the
interest rate on all borrowings to prime plus 2% and was extended one year to
mature on April 6, 1999. The agreement also provides that the maximum borrowings
during the months of September through December of any year may be $20 million
if the borrowing is properly supported by eligible collateral.
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 September 30, 1995, $3,194,000
was outstanding on the term loan and $13,934,000 was outstanding under working
capital loans.
In the first half of the year, the Company collects accounts receivable
from the previous Holiday season. Initial positive cash flow is used to repay
short-term borrowings and then short-term borrowings are utilized to acquire
inventory for goods to be shipped for the upcoming Holiday season. The increase
in inventories in 1995 is significantly less than in 1994 due to lower purchases
in 1995 and the carryover of higher inventories at December 31, 1994. Accounts
receivable also increased by a much smaller amount than in 1994 due to lower
sales in 1995 and the higher receivables outstanding at December, 1994 than in
1993. 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 as well as funds utilized for payments of long-term
notes. The small increase in accrued expenses results from the significant
decrease in budgeted marketing expenses, principally those connected with the
introduction of Timberline in 1994.
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.
<PAGE>
PART II
MEM COMPANY, INC.
OTHER INFORMATION
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
November 14, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 233,247
<SECURITIES> 0
<RECEIVABLES> 15,841,990
<ALLOWANCES> (448,797)
<INVENTORY> 20,611,823
<CURRENT-ASSETS> 37,284,470
<PP&E> 18,969,988
<DEPRECIATION> (13,647,869)
<TOTAL-ASSETS> 53,637,222
<CURRENT-LIABILITIES> 25,025,369
<BONDS> 3,623,184
<COMMON> 150,000
0
0
<OTHER-SE> 24,838,669
<TOTAL-LIABILITY-AND-EQUITY> 53,637,222
<SALES> 27,684,336
<TOTAL-REVENUES> 27,684,336
<CGS> 15,097,363
<TOTAL-COSTS> 29,077,375
<OTHER-EXPENSES> 103,900
<LOSS-PROVISION> 163,589
<INTEREST-EXPENSE> 1,145,019
<INCOME-PRETAX> (2,641,958)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,641,958)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,641,958)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
</TABLE>
