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, 1996
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
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. 2,583,184 shares of
Common Stock were outstanding at June 30, 1996.
<PAGE>
PART I
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996 AND DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
6/30/96 12/31/95
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash ............................................................................... $ 160,670 $ 957,562
Accounts receivable, less allowance for doubtful accounts
of $648,355 at 6/30/96 and $680,319 at 12/31/95 ............................ 5,045,762 13,381,468
Inventories, at lower of cost (first-in, first out) or market: ................... 7,448,374 6,021,947
Finished goods
Raw materials and work in process .......................................... 11,972,955 8,582,573
Prepaid expenses ................................................................... 1,450,637 825,377
------------ ------------
Total current assets ............................................................... 26,078,398 29,768,927
Property, plant and equipment, at cost ............................................. 19,269,804 19,106,128
Less accumulated depreciation ...................................................... (14,485,038) (13,924,996)
------------ ------------
Net property, plant and equipment .................................................. 4,784,766 5,181,132
Other assets:
Advance royalty payments - net ..................................................... 496,170 567,450
Other assets ....................................................................... 250,516 208,132
Intangibles - net .................................................................. 9,859,941 10,098,702
------------ ------------
Total assets ....................................................................... $ 41,469,791 $ 45,824,343
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable to financial institutions and banks .................................. $ 10,032,496 $ 10,791,385
Accounts payable ................................................................... 5,764,558 3,523,504
Accrued expenses ................................................................... 1,629,645 1,928,989
Notes payable - current portion .................................................... 1,553,990 1,553,990
------------ ------------
Total current liabilities .......................................................... 18,980,689 17,797,868
Long-term notes .................................................................... 2,274,005 3,369,813
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 .................................................................. 22,034,385 26,460,779
Less: Common stock in treasury, at cost ........................................... (4,597,430) (4,597,430)
Cumulative translation adjustment ......................................... (461,968) (446,797)
------------ ------------
Total stockholders' equity ......................................................... 20,215,097 24,656,662
------------ ------------
Total liabilities and stockholders' equity ......................................... $ 41,469,791 $ 45,824,343
============ ============
</TABLE>
<PAGE>
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1996 1995 1995
QUARTER YEAR TO DATE QUARTER YEAR TO DATE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales .......................................... $ 4,258,979 $ 9,180,831 $ 4,703,688 $ 10,985,222
Costs and expenses:
Cost of sales ...................................... 2,919,048 5,663,400 2,733,824 6,202,368
Selling and shipping expense ....................... 2,245,664 4,209,123 2,527,112 4,807,886
General and administrative expense ................. 1,317,987 2,679,238 1,226,176 2,441,254
------------ ------------ ------------ ------------
Total costs and expenses .......................... 6,482,699 12,551,761 6,487,112 13,451,508
------------ ------------ ------------ ------------
(2,223,720) (3,370,930) (1,783,424) (2,466,286)
Other income (expense):
Royalties, interest and other income ............... 43,035 132,080 72,405 177,170
Amortization of intangibles ........................ (119,381) (238,761) (119,358) (238,689)
Merger expenses .................................... (288,276) (288,276) -- --
Interest expense ................................... (303,961) (585,046) (323,900) (587,894)
Financing expense .................................. (42,293) (75,461) (47,898) (80,295)
------------ ------------ ------------ ------------
Net (loss) ......................................... $ (2,934,596) $ (4,426,394) $ (2,202,175) $ (3,195,994)
============ ============ ============ ============
Net (loss) per share ............................... $ (1.13) $ (1.71) $ (.85) $ (1.24)
============ ============ ============ ============
Average shares outstanding ......................... 2,583,184 2,583,184 2,580,184 2,580,184
</TABLE>
<PAGE>
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) .............................................................. $(4,426,394) $(3,195,994)
Depreciation and amortization .................................................. 869,947 844,071
Provision for losses on accounts receivable .................................... 157,194 108,942
(Increase) decrease in accounts receivable ..................................... 8,172,581 7,226,063
(Increase) decrease in inventory ............................................... (4,814,564) (6,047,332)
(Increase) decrease in other current assets .................................... (624,633) (204,000)
(Increase) decrease in other assets ............................................ (42,384) (13,838)
Increase (decrease) in accounts payable ........................................ 2,241,316 729,137
Increase (decrease) in accrued expenses ........................................ (298,931) (988,162)
----------- -----------
Net cash provided by (used in) operating activities ............................ 1,234,132 (1,541,113)
Cash Flows from Investing Activities:
Additions to plant and equipment ............................................... (163,592) (496,887)
----------- -----------
Net cash (used in) investing activities ........................................ (163,592) (496,887)
Cash Flows from Financing Activities:
Short-term borrowings .......................................................... 5,656,747 8,611,394
(Repayments of) short-term borrowings .......................................... (6,416,264) (6,316,076)
(Payments of) long-term notes .................................................. (1,095,809) (1,089,159)
----------- -----------
Net cash (used in) provided by financing activities ............................ (1,855,326) 1,206,159
Effect of exchange rate changes on cash ........................................ (12,106) 1,304
----------- -----------
Net (decrease) in cash ......................................................... (796,892) (830,537)
Cash at the beginning of the year .............................................. 957,562 1,128,897
----------- -----------
Cash at the end of the period .................................................. $ 160,670 $ 298,360
=========== ===========
</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
Six Months Ended June 30, 1996 and 1995
Net sales for the first half of 1996 were 16% lower than in the prior
year period. Gross sales decreased 9% or $1,425,000 and returns and allowances
increased 10% or $380,000. The decline in gross sales is the result of lower
sales of Timberline and British Sterling men's fragrances, Tinkerbell products,
and to a lesser extent, Heaven Sent women's products. The sales decline
principally occurred in the first quarter of the year as a result of a
relatively modest performance at Christmas by major retailers with the
consequent carryover of inventories into the first quarter of 1996. This
carryover also contributed to an increase in returns and allowances in the
second quarter compared to the same period last year. Net sales in the United
Kingdom declined as a result of higher returns and allowances. Canadian business
continued to be weak, with lower gross sales and higher returns than in the
first six months of 1995. Modest sales price increases on some products were
effective at the beginning of 1996, but did not have a significant impact on
revenues. The effects of inflation and exchange rate fluctuations were not
material.
Cost of sales increased in relation to sales primarily as a result of
the higher returns experienced in the second quarter of 1996 compared to 1995.
Cost of goods was also higher in relation to sales due to the impact of lower
than normal sales prices on certain inventories sold during the period and other
inventory valuation adjustments.
Selling and shipping expense increased from 44% of sales to 46% in
1996. The primary reason for this increase is the relatively fixed nature of the
Company's selling expense. Distribution and marketing expenses were slightly
lower in relation to sales in 1996 compared to 1995. General and administrative
expense increased $238,000, primarily due to increased compensation expenses and
also for increases in management information systems expenses and a higher
provision for doubtful accounts.
Royalties, interest and other income declined primarily due to
additional miscellaneous other expenses compared to the first half of 1995.
Merger expenses of $288,000 through June 30, 1996 were professional fees
incurred in connection with the work of the Special Committee of the Board of
Directors and their advisors. Interest expense was at the same level as in the
first half of 1995. Interest on higher average loans outstanding was offset by
lower rates paid during the period. The Company has significant tax loss
carryforwards available to offset future taxable income.
<PAGE>
Quarter Ended June 30, 1996 and 1995
Net sales declined by $445,000 as a result of a decline in gross sales
of $135,000 and an increase in returns and allowances of $310,000. The decline
in gross sales was due to lower sales of Tinkerbell products. The increase in
returns and allowances resulted from Tinkerbell returns in the United States,
and from higher returns and allowances in both Canada and the United Kingdom.
Cost of sales increased in relation to sales from 58% in 1995 to 68% in 1996.
The reasons for the change are substantially the same as those mentioned in the
six months discussion. Selling and shipping expense declined from 54% of sales
to 53%, primarily as a result of lower marketing expenses. General and
administrative expense increased $92,000 as a result of an increase in the
provision for doubtful accounts of $50,000 and the remainder was principally
from increases in compensation expense. The reasons for changes in other income
(expense) are substantially the same as discussed previously.
Liquidity and Capital Resources
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 $11,971,000 at the end of 1995 and a revolving
credit agreement with financial institutions. This agreement was amended May 1,
1996 and now provides for total borrowings (including the outstanding term loan)
of $20,000,000 which may be increased to $22,000,000 during peak seasonal
periods. At June 30, 1996, the term loan outstanding was $2,541,000 and
$9,429,000 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. In the first
half of 1996, the Company reduced its receivables to a greater extent than in
1995, reduced its investment in inventory, and increased its payables and
accrued expenses, resulting in cash provided by operations of $1,234,000 as
compared to cash used in operations of $1,541,000 in 1995.
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.
In late February, 1996, the Company announced that a Special Committee
of the Board of Directors had been appointed to explore strategic alternatives
for the Company. In April, 1996, the Company announced that it had retained
Peter J. Solomon Company Limited, an investment banking firm, to work with the
Company and the Special Committee of the Board.
On June 24, 1996, the Company announced that it had reached an
agreement in principle to be acquired by Renaissance Cosmetics, Inc. at $7.50
per share, subject to various conditions.
<PAGE>
Part II
MEM Company, Inc.
Item 1. Legal Proceedings
On July 31, 1996, Tom Randall ("Randall"), on behalf of himself and all
other shareholders of the Company (other than the defendants), filed a purported
class action suit in Supreme Court, State of New York, against the Company and
four of its current and former directors, Gay A. Mayer, Elizabeth C. Mayer,
Bruce J. Klatsky and Paul Hallingby, Jr., seeking equitable relief and
unspecified compensatory damages. The suit alleges, among other things, that the
consideration proposed to be paid to public shareholders of the Company under
the terms of the transactions contemplated by the agreement in principle with
Renaissance Cosmetics, Inc. ("RCI") announced June 24, 1996 is inadequate and
grossly unfair to the public shareholders of the Company and further that the
individual defendants, in violation of their fiduciary obligations to maximize
shareholder value, have not considered potential purchasers of the Company or
its stock in a manner designed to obtain the highest possible price for the
Company's public shareholders. Randall seeks, among other things, an order of
the Court requiring defendant to seek other buyers of the Company and, in the
event that the proposed transactions with RCI are consummated, Randall seeks to
recover damages caused by the alleged breach of fiduciary duties owed by the
individual defendants to the shareholders of the Company, together with fees and
expenses.
<PAGE>
PART II
MEM COMPANY, INC.
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 23, 1996, 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, 1996 was ratified. The number of votes cast for, against or
withheld/abstained with regard to the each nominee or matter are set forth
below.
<TABLE>
<CAPTION>
Withheld
For Against Abstained
<S> <C> <C> <C>
Election of Directors
Elizabeth C. Mayer ............... 2,493,805 N/A 11,884
Paul Hallingby, Jr ............... 2,440,516 N/A 65,173
Gay A. Mayer ..................... 2,493,605 N/A 12,084
Derek B. Van Dusen ............... 2,494,805 N/A 10,884
Robert E. Mulcahy III ............ 2,494,805 N/A 10,884
Laurette M. Beach ................ 2,494,905 N/A 10,784
Bruce J. Klatsky ................. 2,495,005 N/A 10,684
Ratification of Auditors ........... 2,502,009 2,742 938
</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.
MICHAEL G. KAZIMIR, JR.
Executive Vice President
Duly Authorized Officer &
Chief Financial Officer
August 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 160,670
<SECURITIES> 0
<RECEIVABLES> 5,694,117
<ALLOWANCES> (648,355)
<INVENTORY> 19,421,329
<CURRENT-ASSETS> 26,078,398
<PP&E> 19,269,804
<DEPRECIATION> (14,485,038)
<TOTAL-ASSETS> 41,469,791
<CURRENT-LIABILITIES> 18,980,689
<BONDS> 2,274,005
0
0
<COMMON> 150,000
<OTHER-SE> 20,065,097
<TOTAL-LIABILITY-AND-EQUITY> 41,469,791
<SALES> 9,180,831
<TOTAL-REVENUES> 9,180,831
<CGS> 5,663,400
<TOTAL-COSTS> 12,394,567
<OTHER-EXPENSES> 470,418
<LOSS-PROVISION> 157,194
<INTEREST-EXPENSE> 585,046
<INCOME-PRETAX> (4,426,394)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,426,394)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,426,394)
<EPS-PRIMARY> (1.71)
<EPS-DILUTED> (1.71)
</TABLE>
