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 MARCH 31, 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
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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. 2,583,184 shares of
Common Stock were outstanding at March 31, 1996.
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<CAPTION>
PART I
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996 AND DECEMBER 31, 1995 (UNAUDITED)
3/31/96 12/31/95
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<S> <C> <C>
ASSETS:
Current assets:
Cash ........................................................... $ 490,327 $ 957,562
Accounts receivable, less allowance for doubtful accounts
of $578,791 at 3/31/96 and $680,319 at 12/31/95 ........ 5,635,916 13,381,468
Inventories, at lower of cost (first-in, first out) or market:
Finished goods ......................................... 7,025,924 6,021,947
Raw materials and work in process ...................... 8,823,929 8,582,573
Prepaid expenses ............................................... 940,315 825,377
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Total current assets ........................................... 22,916,411 29,768,927
Property, plant and equipment, at cost ......................... 19,160,820 19,106,128
Less accumulated depreciation .................................. (14,195,591) (13,924,996)
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Net property, plant and equipment .............................. 4,965,229 5,181,132
Other assets:
Advance royalty payments - net ................................. 531,810 567,450
Other assets ................................................... 221,970 208,132
Intangibles - net .............................................. 9,979,321 10,098,702
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Total assets ................................................... $ 38,614,741 $ 45,824,343
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable to financial institutions and banks .............. $ 5,639,957 $ 10,791,385
Accounts payable ............................................... 3,581,217 3,523,504
Accrued expenses ............................................... 1,603,106 1,928,989
Notes payable - current portion ................................ 1,553,990 1,553,990
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Total current liabilities ...................................... 12,378,270 17,797,868
Long-term notes ................................................ 3,143,909 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 .............................................. 24,968,981 26,460,779
Less: Common stock in treasury, at cost ....................... (4,597,430) (4,597,430)
Cumulative translation adjustment ..................... (519,099) (446,797)
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Total stockholders' equity ..................................... 23,092,562 24,656,662
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Total liabilities and stockholders' equity ..................... $ 38,614,741 $ 45,824,343
============ ============
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<CAPTION>
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
1996 1995
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<S> <C> <C>
Net sales .................................... $ 4,921,852 $ 6,281,534
Costs and expenses:
Cost of sales ................................ 2,744,352 3,468,544
Selling and shipping expense ................. 1,963,459 2,280,774
General and administrative expense ........... 1,361,251 1,215,078
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Total costs and expenses ............. 6,069,062 6,964,396
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(1,147,210) (682,862)
Other income (expense):
Royalties, interest and other income ......... 89,045 104,765
Amortization of intangibles .................. (119,380) (119,331)
Interest expense ............................. (281,085) (263,994)
Financing expense ............................ (33,168) (32,397)
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Net (loss) ................................... $(1,491,798) $ (993,819)
=========== ===========
Net (loss) per share ......................... $ (.58) $ (.39)
=========== ===========
Average shares outstanding ................... 2,583,184 2,580,184
Net income (loss) per share was determined by dividing net income (loss) by the
average number of shares outstanding during the respective period.
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<CAPTION>
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1996 1995
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) .............................. $(1,491,798) $ (993,819)
Depreciation and amortization .................. 434,168 421,385
Provision for losses on accounts receivable .... 51,597 54,426
(Increase) decrease in accounts receivable ..... 7,669,769 6,930,584
(Increase) decrease in inventory ............... (1,259,835) (1,363,796)
(Increase) decrease in other current assets .... (116,598) (86,672)
(Increase) decrease in other assets ............ (13,838) (13,838)
Increase (decrease) in accounts payable ........ 61,003 (1,796,594)
Increase (decrease) in accrued expenses ........ (323,229) (717,703)
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Net cash provided by operating activities ...... 5,011,239 2,433,973
Cash Flows from Investing Activities:
Additions to plant and equipment ............... (64,624) (260,864)
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Net cash (used in) investing activities ........ (64,624) (260,864)
Cash Flows from Financing Activities:
Short-term borrowings .......................... 1,274,817 3,604,751
(Repayments of) short-term borrowings .......... (6,416,264) (6,316,076)
(Payments of) long-term notes .................. (225,904) (222,547)
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Net cash (used in) financing activities ........ (5,367,351) (2,933,872)
Effect of exchange rate changes on cash ........ (46,499) (21,369)
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Net (decrease) in cash ......................... (467,235) (782,132)
Cash at the beginning of the year .............. 957,562 1,128,897
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Cash at the end of the period .................. $ 490,327 $ 346,765
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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.
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Management's Discussion and Analysis of
Financial Condition and Results of Operations
First Quarter Ended March 31, 1996 and 1995
Net sales for the first quarter of 1996 were 22% lower than the prior
year. The decrease is the result of a relatively modest performance at Christmas
by major retailers, with the consequent carryover of inventories into the first
quarter, which delayed the reorder cycle. The decline was spread among the
various brands, with Tinkerbell performing better than the men's and women's
categories. Returns from retailers also declined in the first quarter compared
to 1995. Sales in the United Kingdom were modestly lower than in the 1995 first
quarter, and Canadian business continued to be weak. Modest sales price
increases on some products were effective at the beginning of the year, but did
not have a significant impact on revenues. The effects of inflation and exchange
rate fluctuations were not material.
Cost of sales increased slightly in relation to sales. Higher gross
margins on domestic sales were offset by lower margins in the United Kingdom.
Selling and shipping expense increased from 36% of sales to 40% in 1996. The
primary reason for this increase is the relatively fixed nature of the Company's
selling expense. Distribution and marketing expenses were about the same in
relation to sales in 1996 compared to 1995. General and administrative expense
increased $146,000, primarily due to increased expenses for management
information systems and also for increases in compensation expense.
Royalties, interest and other income declined due to lower royalties
earned during the period. Interest expense increased $60,000 as a result of
higher short-term loans outstanding during the first quarter of 1996 and
declined $42,000 due to lower long-term debt outstanding. The Company has
significant tax loss carryforwards available to offset future taxable income.
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 provides for total
borrowings (including the outstanding term loan) of $17,500,000 which may be
increased to $20,000,000 during peak seasonal periods. At March 31, 1996, the
term loan outstanding was $2,759,000.
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In the first quarter of the year, the Company collects accounts
receivable from the previous Holiday season and begins to acquire inventory for
the upcoming season. This is the reason for the positive cash flow provided by
operations despite the loss for the period. These funds are then used to repay
short-term borrowings.
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.
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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
May 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 490,327
<SECURITIES> 0
<RECEIVABLES> 6,214,707
<ALLOWANCES> (578,791)
<INVENTORY> 15,849,853
<CURRENT-ASSETS> 22,916,411
<PP&E> 19,160,820
<DEPRECIATION> (14,195,591)
<TOTAL-ASSETS> 38,614,741
<CURRENT-LIABILITIES> 12,378,270
<BONDS> 3,143,909
0
0
<COMMON> 150,000
<OTHER-SE> 22,942,562
<TOTAL-LIABILITY-AND-EQUITY> 38,614,741
<SALES> 4,921,852
<TOTAL-REVENUES> 4,921,852
<CGS> 2,744,352
<TOTAL-COSTS> 6,017,465
<OTHER-EXPENSES> 63,503
<LOSS-PROVISION> 51,597
<INTEREST-EXPENSE> 281,085
<INCOME-PRETAX> (1,491,798)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,491,798)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,491,798)
<EPS-PRIMARY> (.58)
<EPS-DILUTED> (.58)
</TABLE>
