FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark one)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 1995
( ) 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.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NEW YORK 13-5546930
- ------------------------------- -----------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification Number)
UNION STREET EXTENSION
NORTHVALE, NEW JERSEY 07647
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 767 - 0100
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
- ---------------------------- -----------------------
Common stock, $.05 par value American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: NONE
<PAGE>
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
There were 2,583,184 shares of the Registrant's Common Stock outstanding at
March 13, 1996. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant (based upon the closing price of the stock on
the American Stock Exchange as reported in the Wall Street Journal) on March 13,
1996 was $2,955,000.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, or portions thereof, have been incorporated herein by
reference:
(i) portions of the Registrant's definitive proxy statement to be furnished in
connection with its Annual Meeting of Shareholders to be held April 23, 1996
(the "Definitive Proxy Statement") have been incorporated by reference in Part
III hereof.
PART I
Item 1. Business
(a) General Development of Business
MEM Company, Inc. (the "Company" or the "Registrant") was incorporated
in 1948 under the laws of the State of New York. The business of the Company
principally consists of manufacturing, selling and distributing a diversified
line of toiletries in several fragrance groups. These are marketed under the
nationally advertised trademarks English Leather(R) , British Sterling(R),
Heaven Sent(R), LOVE'S(R), and Tinkerbell(R). The Company also markets Acqua di
Selva(R), a premium priced imported line of men's toiletries, through a
subsidiary.
In May 1994, the Company acquired the trademark and inventories
relating to the British Sterling(R) fragrance line of men's products. In mid
1994, the Company introduced the Timberline(R) fragrance line for young men in
the "Generation X" category and in the women's product category, the Company
began marketing its Heaven Sent Vanilla line and also introduced the Love's
Frenzy(R) and Love's Clean & Natural product lines. In 1995, the Company began
marketing its Love's White Vanilla line.
<PAGE>
The Company manufactures and markets Heaven Sent(R), a line of women's
fragrance items, in the United States and Canada and owns the distribution
rights in Puerto Rico and elsewhere in the Western Hemisphere. The Company also
manufactures and distributes, under the trademark LOVE'S(R), a line of
toiletries, cosmetics and accessories for teenage girls which are distributed
through franchised dealers consisting primarily of chain and independent drug
stores, mass merchandisers and department stores in the United States and
Canada.
Tom Fields, Ltd. ("Tom Fields") operates as a division of the Company.
Tom Fields manufactures and markets a line of children's cosmetics and
accessories principally under the trademark Tinkerbell(R). A subsidiary, Tom
Fields (U.K.) Ltd., markets this line of children's products in the United
Kingdom and in Europe.
The principal market for all of the above products is the United
States. No significant change occurred during the fiscal year 1995 in kinds of
products, markets or methods of distribution.
(b) Financial Information About Industry Segments
The Company operates in one industry segment: the production and
distribution of toiletries and accessories for men, women and children.
Consolidated financial information relating to product lines, domestic
and foreign operations and export sales for the years ended December 31 is as
follows ($000 omitted):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Sales by product lines:
English Leather and other men's ....... $ 22,226 $ 29,484 $ 17,287
Women's ............................... 11,452 12,623 11,171
Tinkerbell ............................ 11,147 10,987 9,996
-------- -------- --------
$ 44,825 $ 53,094 $ 38,454
======== ======== ========
Sales to unaffiliated customers:
United States ......................... $ 37,130 $ 46,029 $ 31,798
Canada ................................ 2,884 2,894 2,709
United Kingdom ........................ 3,907 3,144 2,502
Export sales to other countries ....... 904 1,027 1,445
-------- -------- --------
$ 44,825 $ 53,094 $ 38,454
======== ======== ========
Income (loss) before interest and taxes:
United States ......................... $ (1,390) $ (169) $ (1,665)
Canada ................................ (133) (15) (316)
United Kingdom ........................ 143 (32) (100)
-------- -------- --------
$ (1,380) $ (216) $ (2,081)
======== ======== ========
Identifiable assets:
United States ......................... $ 40,205 $ 42,772 $ 29,983
Canada ................................ 3,057 2,763 2,881
United Kingdom ........................ 2,562 1,726 1,418
-------- -------- --------
$ 45,824 $ 47,261 $ 34,282
======== ======== ========
</TABLE>
<PAGE>
(c) Narrative Description of Business
The Company is principally engaged in the manufacture, sale and
distribution of a diversified line of toiletries and accessories under the
nationally advertised trademarks English Leather(R), British Sterling(R),
Timberline(R), Love's(R), Heaven Sent(R) and Tinkerbell(R). The principal market
for these products is the continental United States with a distribution service
network consisting of three warehouse locations.
The primary shipping location is Northvale, New Jersey and two other
distribution warehouses are located in Texas and California. The toiletries
industry is highly competitive and, based on available industry sources, the
Company believes that it is among the leading producers of products sold within
the same price range as its products.
Although the Company and its subsidiaries are not dependent upon a
single customer or a very few customers for their business, one national
customer represented 13% of net sales in 1995 and 14% in 1994. The Company has
done substantial business with this customer for several years and feels they
have a good business relationship. Although the total loss of business with the
customer would have a material adverse effect, the Company considers that
possibility to be remote. Due to the seasonal nature of the business and the
heavy volume of shipments made in the last half of the year, there was no
significant backlog of orders as of December 31, 1995 or 1994. In 1995 and 1994
the last half of the calendar year accounted for 75% and 79% of net sales,
respectively. The related inventory requirements and accounts receivable are
financed by the Company's revolving credit agreement. Present supply sources are
adequate for the requirements of the business and several alternate sources are
available if needed. For the protection against misuse by others, the trademarks
under which most of the toiletry and accessory products are sold by the Company
have been registered in the United States Patent Office and in many other
countries. At December 31, 1995, the Company and its subsidiaries employed 391
persons.
The Company's terms of sale do not provide the purchaser any right to
return merchandise to the Company. Returns of merchandise which has been damaged
and of seasonal merchandise must be approved by the Company before the customer
receives credit, which the Company does not unreasonably withhold. Orders are
generally shipped promptly after receipt and cancellations have been negligible.
The Company owns the majority of the trademarks under which it makes
its products for which it pays no royalties. It uses certain trademarks pursuant
to licensing agreements which generally provide for royalties based on the net
sales volume of trademarked products. In 1993 the Company exercised its option
to make a one time $500,000 payment under a licensing agreement in lieu of
making any future royalty payments under the agreement. Royalties were not a
material portion of the Company's costs during the Company's last three fiscal
years. All the licenses are of perpetual duration.
The Company's expenditures for research and development were immaterial
during the years ended December 31, 1995, 1994 and 1993.
<PAGE>
Item 1A. Executive Officers of the Registrant (See Item 10 herein)
All of the officers set forth below have been elected to serve until the
next Annual Meeting of the Company's Board of Directors or until their
successors are elected and qualified.
<TABLE>
<CAPTION>
Officer
Name Office Held Age Since
- ---- ----------- --- -------
<S> <C> <C> <C>
Gay A. Mayer Chairman of the Board, 53 1966
President, Chief Executive Officer
Michael G. Kazimir, Jr. Executive Vice President, 52 1990
Chief Operating Officer,
Chief Financial Officer
Brian C. McNally Senior Vice President, Sales 39 1995
Steven M. Feigenbaum Vice President, Sales 48 1991
Robert O. Hurry Vice President, Finance and Treasurer 57 1966
Donald E. Jensen Vice President, Operations 51 1994
Nicholas J. Marinacci Vice President, Marketing 48 1994
Nicholas A. Villanova Vice President, Purchasing & 48 1995
Package Development
Margaret A. Powers Secretary 61 1983
</TABLE>
All officers serve at the pleasure of the Board of Directors. All of the
above executive officers have served as such for the past five years except
Messrs. Kazimir, McNally, Feigenbaum, Jensen, Marinacci and Villanova.
Mr. Kazimir was elected Executive Vice President and Chief Operating
Officer in March, 1993. Previously, he had been Senior Vice President of Finance
and Administration, Chief Financial Officer since November, 1990. He had been
the President of his own consulting firm for two years prior to joining MEM.
Before that he was with Elizabeth Arden, Inc. in various financial and operating
capacities.
Mr. McNally previously had been Director of National Accounts and Trade
Relations at Church & Dwight, Inc., a consumer packaged goods company, from 1994
to 1995. From 1988 to 1994, he was Director of Field Sales USA for Beiersdorf,
Inc., also a consumer packaged goods company.
Mr. Feigenbaum, before becoming Vice President of Sales in 1991, was
National Sales Manager since 1989.
Mr. Jensen, before becoming Vice President of Operations in 1994, was
Director of Operations since 1993. Prior to that, he was Director of
Manufacturing since his employment in 1986.
<PAGE>
Mr. Marinacci, prior to becoming Vice President of Marketing in 1994,
had been employed by Houbigant, Inc. since 1989 in various capacities. From
March 1993 to April 1994, he was Vice President of Operations and in 1992 and
1993 he was Vice President, Corporate Marketing. From 1989 to 1992 he held
various marketing positions. Houbigant, Inc. entered Chapter 11 proceedings in
November, 1993, and Mr. Marinacci also served as acting Chief Operating Officer
from December, 1993 to April, 1994.
Mr. Villanova previously had been Vice President of Purchasing and
Package Development at Dawson Home Fashions, a manufacturer of bath accessories,
from 1993 to 1995. Prior to that he was Vice President of Operations at
Perfumers Workshop, Ltd., a manufacturer of fragrances, from 1991 to 1992.
Previously he held several positions at Cosmair, a manufacturer of hair care and
cosmetics, from 1983 to 1991, the most recent of which was Director of
Logistics.
Item 2. Properties
The facilities and plant machinery and equipment owned by the Company
and its subsidiaries are, in the opinion of management, adequate for the conduct
of its business, and are well maintained and in good condition.
The Company's executive offices and main plant are located in a 206,000
square foot building located on 16.3 acres in Northvale, New Jersey and owned by
the Company. The Tom Fields plant is located in a 53,000 square foot building in
Northvale, New Jersey and is owned by a subsidiary of the Company. Manufacturing
facilities in Canada are located in a 32,000 square foot plant in Boucherville,
Quebec which is owned by MEM Company (Canada) Ltd. Tom Fields (U.K.) assembles
products in leased facilities in Folkestone, Kent.
Item 3. Legal Proceedings
No material legal proceedings, other than ordinary routine litigation
incidental to the business, are pending to which the Company or any of its
subsidiaries is a party or of which any of their property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Quarterly Market and Dividend Information
The common stock of the Company is traded on the American Stock
Exchange under the ticker symbol MEM. As of March 6, 1996, the number of record
holders of common stock was 416. The quarterly high and low sales prices for the
past two years are as follows:
<TABLE>
<CAPTION>
Price Range of Common Stock
1995 1994
----------------- -----------------
High Low High Low
----- ----- ----- -----
<S> <C> <C> <C> <C>
First Quarter .................. $4.63 $3.13 $4.50 $3.88
Second Quarter ................. 4.00 3.25 4.50 3.88
Third Quarter .................. 3.75 3.25 6.38 3.88
Fourth Quarter ................. 3.75 2.75 5.63 3.75
</TABLE>
The Company has not declared any cash dividends for the past five years, and
does not anticipate that dividends will be paid in the foreseeable future.
Restrictions on dividend payments contained in the Company's financing agreement
currently prohibit the declaration of dividends if the Company operates at a
loss.
Item 6. Selected Financial Data. (In thousands, except per share figures)
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Net sales .................. $ 44,825 $ 53,094 $ 38,454 $ 44,751 $ 57,949
Net income (loss) .......... $ (2,982) $ (1,328) $ (2,570) $ (4,300) $ 44
Per share .............. $ (1.16) $ (.52) $ (1.00) $ (1.67) $ .02
Dividends declared ......... $ -- $ -- $ -- $ -- $ --
Weighted average shares
outstanding ............ 2,581 2,576 2,572 2,571 2,570
Year-End Financial Position:
Working capital ............ $ 11,971 $ 15,602 $ 18,068 $ 19,636 $ 24,471
Property, plant and
equipment-net .......... $ 5,181 $ 5,324 $ 5,513 $ 6,084 $ 6,685
Total assets ............... $ 45,824 $ 47,261 $ 34,282 $ 39,514 $ 43,626
Long term notes ............ $ 3,370 $ 4,907 $ 699 $ -- $ 838
Stockholders' equity ....... $ 24,657 $ 27,496 $ 28,919 $ 31,589 $ 36,310
Stockholders' equity
per share .............. $ 9.55 $ 10.66 $ 11.24 $ 12.29 $ 14.13
Shares outstanding at end
of year ................ 2,583 2,580 2,573 2,571 2,570
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1995 Compared to 1994
Consolidated net sales in 1995 were 16% lower than in 1994. Almost all
of the decline occurred in the men's product lines. Net sales of Timberline,
which was introduced in 1994, declined by $4,200,000, reflecting the decision by
several major customers not to re-purchase the line in 1995. Sales of English
Leather fragrance products declined $1,300,000 and British Sterling sales were
$900,000 lower than in 1994. Sales of women's products declined $1,200,000,
principally due to lower sales of Heaven Sent products. Sales of Love's Baby
Soft products were about the same as in 1994. Sales of Love's White Vanilla,
introduced in 1995, offset sales declines in Love's Frenzy and Love's Clean &
Natural product lines. Overall Tinkerbell sales increased modestly over the
prior year, with a 24% sales growth in the United Kingdom. This was partially
offset by lower sales to a large customer in the United States. The decrease in
overall sales was primarily the result of lower unit sales. Unit sales price
increases in 1995 were not significant.
Sales in the United States were 19% lower than in 1994, half of which
was the decline in Timberline sales. The retail environment continued to be very
nervous, with most major retailers continuing to reduce their commitments to
inventories of fragrance products. This, coupled with the loss of sales to
customers who had filed for bankruptcy protection earlier in the year, resulted
in a 26% decline in fourth quarter shipments. Sales of men's and women's
fragrances also continued to be impacted by competition from higher priced
"prestige" fragrances being sold in the Company's distribution channels and from
larger companies with greater resources to commit to advertising and marketing
programs.
Canadian sales were the same in 1995 as in 1994, but higher costs of
goods sold resulted in a higher operating loss than in 1994. Tinkerbell sales in
the United Kingdom continued their growth pattern and as a result, this
subsidiary produced a modest profit for the year. Overall, the effects of
inflation and exchange rate fluctuations were not material. The Company
continues to investigate opportunities to develop or acquire contra-seasonal
brands or products to compensate for the current seasonality of its business.
Retailers continue to consider fragrance merchandise to be highly
promotional and seasonal, and request permission to return unsold goods. During
the past several years, management has worked closely with customers concerning
their level of anticipated sales. However, the generally weak retail environment
during 1995 resulted in an increase in actual and anticipated returns of
$250,000 compared to 1994 despite the lower sales level in 1995, and the
percentage of returns to gross sales increased to 18% in 1995 from 15% in 1994.
Cost of sales rose in relation to sales from 54% to 57% primarily as a
result of lower 1995 sales of Timberline products, which have a substantially
lower cost of goods than other products. In addition, the cost of goods
percentage was adversely affected by the higher per unit manufacturing costs
resulting from lower production levels in 1995. Shipping and distribution
expenses were slightly lower in relation to sales in 1995 than in 1994. Selling
expenses, which are relatively fixed in nature, declined modestly in amount but
rose in relation to sales. Marketing expenses declined significantly from 23% to
19% of sales in 1995. This reduction is primarily due to the substantial
expenditures incurred in 1994 in the introduction of the Timberline fragrance
line which were not repeated in 1995. Marketing expenses for other brands
increased by approximately $750,000 in 1995. General and administrative expense
was at the same level as in 1994. A decrease of $77,000 in the provision for
doubtful accounts was offset by increases in personnel and consulting expenses.
Royalty income increased as a result of higher amounts received from
both English Leather and Tinkerbell licensing arrangements. Interest income
declined as a result of the collection of a note receivable which was paid in
full in October, 1994. Amortization of intangibles increased as a result of the
inclusion of amortization of the British Sterling trademark for a full year in
1995 compared to seven months in 1994. Interest expense increased $43,000 as a
result of the long term notes (net of repayments) issued in connection with the
British Sterling acquisition in May, 1994, and also increased $447,000 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. Interest rates on borrowings were approximately 100 basis points
higher in 1995 than in 1994. The Company has over $11,150,000 of domestic and
foreign income tax loss carryforwards and accordingly does not anticipate paying
income taxes until future earnings exceed the carryforwards.
1994 Compared to 1993
Consolidated net sales in 1994 were 38% higher than in 1993. This sales
increase resulted primarily from the acquisition of the British Sterling line of
men's toiletries in May, 1994 from the Speidel Division of Textron, Inc. and
from the introduction of the Timberline fragrance line for "Generation X" young
men. In addition, the Company introduced its Heaven Sent Vanilla line of
fragrance products, the Love's Frenzy product line and the Love's Clean &
Natural environmentally sensitive product line. All of these new brands and
products were sold through the Company's existing channels of distribution by
its regular salesforce. Sales of English Leather fragrances increased modestly
over 1993, and sales of Love's Baby Soft and Heaven Sent were slightly lower
than in 1993, excluding the new products. Sales of Tinkerbell products increased
almost $1,000,000, of which $642,000 came from the United Kingdom. Lower
domestic Tinkerbell sales of $1,090,000 were primarily the result of no 1994
sales to a customer with a sizable 1993 volume, and this decline was more than
offset by a decline in returns of $1,250,000. The increase in overall
consolidated sales was primarily the result of higher unit sales, as unit sales
price increases in 1994 were not significant.
Sales in the United States increased 45% as the result of new product
sales. This sales growth was achieved in spite of the fact that some retailers
continued to reduce their commitments to fragrance products, and most all
continued their efforts to minimize their inventory investment. Fragrance sales
were impacted by competition from "prestige" fragrances being sold to the
Company's customers and from companies with larger resources to commit to
advertising and marketing programs.
Canadian sales were up 13% in local currency and 7% in U. S. dollar
equivalent, and the operating loss was sharply reduced from the prior year.
Tinkerbell sales in the United Kingdom increased over 25% and are approaching
the volume necessary to achieve profitable operations. The effects of inflation
and exchange rate fluctuations were not material.
During the past few years, management has worked closely with the
customers concerning their level of anticipated sales. As a result, actual and
anticipated returns decreased by $100,000 in 1994 compared to 1993 despite the
significantly higher sales level in 1994, and the percentage of returns to gross
sales decreased to 15% in 1994 from 20% in 1993.
Cost of sales declined in relation to sales from 59% of sales in 1993
to 54% in 1994. The primary reason for this improvement was the higher gross
margins on the new brands introduced in 1994, principally Timberline. In
addition, production costs were lower in 1994 due to higher manufacturing
volume. Selling and shipping expense increased from 34% of sales in 1993 to 37%
in 1994. Shipping and distribution expenses were slightly lower in relation to
sales in 1994 than in 1993. Selling expenses remained the same despite the large
sales increase, reflecting the relatively fixed nature of these expenses.
Marketing expenses rose significantly from 17% of sales in 1993 to 23% in 1994
principally as a result of expenditures incurred in the introduction of the
Timberline fragrance line. General and administrative expense increased
$311,000, which resulted from an increase in the provision for losses on
accounts receivable. Personnel and other administrative costs were the same as
in 1993.
Royalty income decreased in 1994 due to lower amounts received from a
Tinkerbell licensee. Amortization of intangibles increased due to the inclusion
of amortization of the British Sterling trademark since June, 1994. Interest
expense increased $429,000 as the result of new long term debt incurred during
the year and increased $193,000 as the result of higher short term loans
outstanding during the year and a modest increase in interest rates paid.
Financing costs decreased in 1994 due to certain non-recurring charges in early
1993 in connection with a prior financing agreement.
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 a financial institution expiring in 1999, which provides
for a $17,500,000 line of credit, based on eligible collateral. This line of
credit may be increased to $20,000,000 during peak seasonal periods. In 1995,
the maximum amount outstanding on short-term borrowings was $16,590,000. At
December 31, 1995, short-term loans of $10,296,000 were outstanding under the
agreement. The borrowings were subsequently reduced to $3,880,000 in February
1996. The revolving credit agreement contains a prohibition on the payment of
dividends if the Company operates at a loss, and considers a material adverse
change as a potential event of default. There are no material commitments for
capital expenditures.
Net cash used in operating activities in 1995 was $2,071,000 and
resulted primarily from the loss incurred for the year. Depreciation and
amortization increased $175,000 due to a full year of British Sterling
amortization in 1995 and a decrease in depreciation expense of $96,000. Accounts
receivable increased $2,072,000 due to a reduction in allowances for sales
returns and advertising from 1994 levels and decreased $1,171,000 as a result of
lower business activity in 1995. The decline in second half sales exceeded the
decline in receivables, reflecting slower payments by vendors. Inventories,
other current assets, accounts payable and other accrued expenses all decreased
as a result of the lower volume of business in 1995. The net cash used in
operations, for additions to plant and equipment and for payments of long-term
notes was mainly financed by an increase in short-term borrowings of $4,263,000
at December 31, 1995.
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements, the Report of
Independent Auditors thereon and related schedule appear on pages F-2 to F-14.
See Index to Consolidated Financial Statements and Financial Statement
Schedules, page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the directors of the Company is
incorporated by reference to the information under the caption "Election of
Directors - Information Concerning Nominees for Election as Directors" of the
Definitive Proxy Statement. Information with respect to the executive officers
of the Company is set forth in Item 1A of this Form 10-K.
Item 11. Executive Compensation
Information with respect to Item 11 is incorporated by reference to the
information under the caption "Election of Directors - Executive Compensation"
of the Definitive Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to Item 12 is incorporated by reference to the
information under the caption "Election of Directors - Information Concerning
Nominees for Election as Directors" and "Election of Directors Principal
Shareholders" of the Definitive Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Not Applicable
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits.
(1) Financial Statements - See accompanying Index to Consolidated
Financial Statements and Financial Statement Schedules, Page F-1.
(2) Financial Statement Schedules - See accompanying Index to
Consolidated Financial Statements and Financial Statement Schedules, Page F-1.
(3) See Exhibit Index on page 16.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the
quarter ended December 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
Date: March 19, 1996 By: /S/ Michael G. Kazimir, Jr.
---------------------------
Michael G. Kazimir, Jr.
Executive Vice President
Chief Operating Officer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/S/ Michael G. Kazimir, Jr. /S/ Michael G. Kazimir, Jr.
- ---------------------------- ---------------------------
Michael G. Kazimir, Jr. Michael G. Kazimir, Jr.
as Attorney-in-Fact for: Executive Vice President
Gay A. Mayer, Chairman, Chief Financial and
President, Chief Executive Accounting Officer
Officer and Director March 19, 1996
Robert E. Mulcahy, III, Director
Paul Hallingby, Jr., Director
Laurette M. Beach, Director
Derek B. Van Dusen, Director
Bruce J. Klatsky, Director
March 19, 1996
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Document
- ----------- --------
<S> <C>
3 (A) Certificate of Incorporation. Incorporated by reference
from the Registrant's Form 10-K for the fiscal
year ended December 31, 1980
3 (B) Amendment to the Certificate of Incorporation dated April 28, 1988.
Incorporated by reference from the Registrant's Form 10-K for the fiscal
year ended December 31, 1988.
3 (C) Amendment to the Certificate of Incorporation dated June 19, 1988.
Incorporated by reference from the Registrant's Form 10-K for the fiscal
year ended December 31, 1988.
3 (D) Amendment to the Certificate of Incorporation dated April 28, 1987.
Incorporated by reference from the Registrant's Form 10-K for the fiscal
year ended December 31, 1987.
3 (E) Amendment to the Certificate of Incorporation dated April 28, 1994.
Filed herewith.
3 (F) By-Laws. Incorporated by reference from the Registrant's Form 10-K for
fiscal year ended December 31,1986.
10 Purchase and sale agreement, dated as of May 5, 1994, between
Textron, Inc. and MEM Company, Inc. Incorporated by reference
from the Registrant's Form 8-K dated May 20, 1994.
21 Subsidiaries of Registrant. Incorporated by reference from the
Registrant's Form 10-K for the fiscal year ended December 31,1992.
23 Consent of Accountants. Filed herewith.
24 Power of Attorney. Filed herewith.
27 Financial Data Schedule. Filed herewith.
</TABLE>
<PAGE>
MEM COMPANY, INC.
Index to Consolidated Financial Statements and Financial
Statement Schedules
The following consolidated financial statements of MEM Company, Inc. are
included in Item 8:
Report of Independent Auditors
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
The following consolidated financial statement schedule of MEM Company, Inc. is
included in Item 14 (d):
II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
<PAGE>
Report of Independent Auditors
- ------------------------------
The Board of Directors and Stockholders
MEM Company, Inc.
We have audited the accompanying consolidated balance sheets of MEM Company,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of MEM
Company, Inc. and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Hackensack, New Jersey
February 21, 1996
<PAGE>
MEM COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales ........................ $ 44,825,314 $ 53,094,217 $ 38,453,774
Costs and expenses:
Cost of sales .................... 25,618,098 28,541,205 22,622,236
Selling and shipping expense ..... 15,108,538 19,612,873 13,281,251
General and administrative expense 5,215,135 5,202,902 4,892,234
------------ ------------ ------------
Total costs and expenses ..... 45,941,771 53,356,980 40,795,721
------------ ------------ ------------
(1,116,457) (262,763) (2,341,947)
Other income (expense):
Royalty income ................... 361,085 264,535 409,119
Interest income .................. 18,726 226,226 247,245
Amortization of intangibles ...... (477,460) (306,326) (57,936)
Other income (expense) ........... 5,124 11,816 (48,617)
Interest expense ................. (1,602,038) (1,112,403) (489,363)
Financing expense ................ (170,957) (149,362) (288,407)
------------ ------------ ------------
Net (loss) ....................... $ (2,981,977) $ (1,328,277) $ (2,569,906)
============ ============ ============
Per share, based on weighted
average shares outstanding .... $ (1.16) $ (.52) $ (1.00)
============ ============ ============
See accompanying notes.
</TABLE>
<PAGE>
MEM COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
Assets
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Current assets:
Cash .............................................. $ 957,562 $ 1,128,897
Accounts receivable, less allowance for
doubtful accounts of $680,319 in 1995 and
$661,654 in 1994 ................................ 13,381,468 12,843,943
Inventories, at lower of cost (first-in, first-out)
or market:
Finished goods ................................ 6,021,947 6,095,908
Raw materials & work in process ............... 8,582,573 9,228,083
Prepaid expenses .................................. 825,377 1,163,589
------------ ------------
Total current assets .............................. 29,768,927 30,460,420
Property, plant & equipment, at cost:
Land .............................................. 341,752 340,829
Buildings & improvements .......................... 4,466,224 4,250,376
Machinery & equipment ............................. 11,812,562 11,174,123
Furniture & fixtures .............................. 2,485,590 2,347,180
------------ ------------
19,106,128 18,112,508
Less accumulated depreciation ..................... (13,924,996) (12,788,644)
------------ ------------
Net property, plant & equipment ................... 5,181,132 5,323,864
Other assets:
Advance royalty payments & license
agreements - net of accumulated amortization
of $747,050 in 1995 and $604,490 in 1994 ...... 567,450 710,010
Net cash value of life insurance and other assets . 208,132 193,729
Intangible assets - net of accumulated amortization
of $1,240,107 in 1995 and $761,765 in 1994 ..... 10,098,702 10,572,940
------------ ------------
Total assets ...................................... $ 45,824,343 $ 47,260,963
============ ============
See accompanying notes.
</TABLE>
<PAGE>
MEM COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Current liabilities:
Loans payable .......................... $ 10,791,385 $ 6,528,016
Accounts payable ....................... 3,523,504 4,488,160
Accrued expenses ....................... 853,001 1,004,720
Accrued advertising and promotion ...... 1,075,988 1,303,667
Notes payable-current portion .......... 1,553,990 1,534,066
------------ ------------
Total current liabilities .............. 17,797,868 14,858,629
Long-term notes:
8% - payable to 1997 .............. 644,000 1,288,000
8.19% - payable to 1998 .............. 620,521 642,039
10.5% - payable to 1999 .............. 2,105,292 2,976,585
------------ ------------
Total long-term notes .................. 3,369,813 4,906,624
Commitments and contingencies
Stockholders' equity:
Common stock, $.05 par value;
shares authorized: 6,000,000;
issued: 3,000,000 .................. 150,000 150,000
Additional paid-in capital ............. 3,090,110 3,090,110
Retained earnings ...................... 26,460,779 29,442,756
------------ ------------
29,700,889 32,682,866
Less common stock in treasury,
at cost (1995 - 416,816 shares;
1994 - 419,816) ..................... (4,597,430) (4,607,180)
Cumulative translation adjustment ...... (446,797) (579,976)
------------ ------------
Total stockholders' equity ............. 24,656,662 27,495,710
------------ ------------
Total liabilities and stockholders'
equity .............................. $ 45,824,343 $ 47,260,963
============ ============
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEM COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1995, 1994 and 1993
Additional
Common Paid-in Retained Treasury Translation
Stock Capital Earnings Stock Adjustment Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1992 ............ $ 150,000 $ 3,090,110 $ 33,340,939 $ (4,644,010) $ (348,135) $ 31,588,904
Issuance of treasury shares .......... -- -- -- 6,500 -- 6,500
Translation adjustment ............... -- -- -- -- (106,859) (106,859)
Net income (loss) .................... -- -- (2,569,906) -- -- (2,569,906)
-------------------------------------------------------------------------------------------
Balance December 31, 1993 ............ 150,000 3,090,110 30,771,033 (4,637,510) (454,994) 28,918,639
Issuance of treasury shares .......... -- -- -- 30,330 -- 30,330
Translation adjustment ............... -- -- -- -- (124,982) (124,982)
Net income (loss) .................... -- -- (1,328,277) -- -- (1,328,277)
-------------------------------------------------------------------------------------------
Balance December 31, 1994 ............ 150,000 3,090,110 29,442,756 (4,607,180) (579,976) 27,495,710
Issuance of treasury shares .......... -- -- -- 9,750 -- 9,750
Translation adjustment ............... -- -- -- -- 133,179 133,179
Net income (loss) .................... -- -- (2,981,977) -- -- (2,981,977)
-------------------------------------------------------------------------------------------
Balance December 31, 1995 ............ $ 150,000 $ 3,090,110 $ 26,460,779 $ (4,597,430) $ (446,797) $ 24,656,662
===========================================================================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEM COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) ........................... $ (2,981,977) $ (1,328,277) $ (2,569,906)
Depreciation and amortization ............... 1,719,514 1,640,308 1,451,331
Provision for losses on accounts receivable . 368,330 445,065 119,098
(Increase) decrease in accounts receivable .. (901,284) (4,762,020) 1,705,326
(Increase) decrease in inventory ............ 748,628 (3,512,810) 2,079,755
(Increase) decrease in other current assets . 337,909 20,741 270,840
Increase (decrease) in accounts payable ..... (964,631) 2,205,017 (377,412)
Increase (decrease) in other accrued expenses (383,047) 980,500 (315,929)
(Increase) decrease in other assets ......... (14,403) (15,253) (27,941)
------------ ------------ ------------
Net cash (used in ) provided by operating
activities ............................... (2,070,961) (4,326,729) 2,335,162
Cash Flows from Investing Activities
Additions to plant and equipment ............ (946,333) (1,023,003) (719,030)
Payment in lieu of future royalties ......... -- -- (500,000)
Acquisition of intangibles .................. -- (6,409,215) --
Collection of note receivable ............... -- 2,635,989 240,473
------------ ------------ ------------
Net cash (used in) investing activities ..... (946,333) (4,796,229) (978,557)
Cash Flows from Financing Activities
Short-term borrowings ....................... 16,894,091 14,709,272 7,326,415
(Repayments of) short-term borrowings ....... (12,622,580) (9,209,825) (9,121,954)
Proceeds from long-term notes ............... -- 7,050,000 --
(Payments of) long-term notes ............... (1,535,260) (3,220,833) (12,691)
Issuance of treasury stock .................. 9,750 8,250 6,500
------------ ------------ ------------
Net cash provided by (used in) financing
activities ............................... 2,746,001 9,336,864 (1,801,730)
Effect of exchange rate changes on cash ..... 99,958 (77,028) (11,643)
------------ ------------ ------------
Net increase (decrease) in cash ............. (171,335) 136,878 (456,768)
Cash at the beginning of the year ........... 1,128,897 992,019 1,448,787
------------ ------------ ------------
Cash at the end of the year ................. $ 957,562 $ 1,128,897 $ 992,019
============ ============ ============
Supplemental cash flow data:
Interest paid ............................ $ 1,581,743 $ 995,727 $ 530,488
============ ============ ============
See accompanying notes.
</TABLE>
<PAGE>
MEM COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Note 1. Accounting Policies
Nature of business: The Company's business consists of manufacturing, selling
and distributing a diversified line of toiletries and accessories to retailers
of all sizes. The Company operates in one industry segment. One national
customer represented 13% of net sales in 1995 and 14% in 1994. The Company
performs periodic credit evaluations of its customers' financial condition and
generally does not require collateral. Financial information about geographic
data is disclosed in Item 1(b) of the Company's 1995 Form 10-K.
Consolidation: The consolidated financial statements include the accounts of the
Company's subsidiaries. All material intercompany items have been eliminated.
The assets and liabilities of foreign subsidiaries have been translated at the
exchange rate at the balance sheet date. Revenues, expenses, gains and losses
are translated at the average rate for the year, determined by averaging the
rates at the end of each calendar quarter.
Deferred financing costs: Deferred financing costs are included in prepaid
expenses and are being amortized over the life of the loans.
Intangible assets: Intangible assets arising from the excess of purchase price
of subsidiaries acquired prior to 1971 over the fair value of the net assets
acquired have not been amortized. Other intangible assets are being amortized on
a straight-line basis over twenty to forty years. Impairments are recognized
whenever events or changes in circumstances indicate that the carrying amount of
intangible assets may not be recoverable and the future undiscounted cash flows
attributable to the asset are less than its carrying value. In 1995, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 121 and utilized
its provisions in the evaluation of intangible and other long-lived assets. The
adoption of SFAS No. 121 had no effect on the financial statements.
Depreciation: For financial accounting purposes, depreciation is provided on the
straight-line basis as follows: buildings and improvements - 3 to 25 years;
machinery and equipment - 5 to 12 years; furniture and fixtures - 4 to 10 years.
For income tax purposes, the Company generally uses accelerated depreciation.
Advance royalty payments and license agreements: License agreements and
nonrefundable royalty payments in connection with a licensing agreement are
being amortized as selling expense on a straight-line basis which averages
seventeen years.
Royalty income: Royalty income represents amounts earned by licensing the
English Leather and Tinkerbell trademarks for use by various third parties.
Revenue recognition: Revenues are recorded at the time of shipment of
merchandise.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements and
accompanying notes. These estimates principally include provisions for sales
returns and allowances. Actual results could differ from those estimates.
<PAGE>
Note 2. British Sterling Asset Purchase
On May 20, 1994, the Company acquired certain assets relating to the British
Sterling fragrance line of products from the Speidel Division of Textron, Inc.
for $9,182,000, of which $8,145,000 was for intangibles, $1,029,000 for
inventories and $8,000 for other assets. Other direct costs of the acquisition
were $196,215. The purchase was financed by a term loan of $7,050,000 and a note
for $1,932,000 payable to Textron. The balance of $396,215 was paid from the
Company's working capital.
Note 3. Credit Arrangements and Notes Payable
In March, 1993, the Company obtained a three year secured financing agreement
with a financial institution which provided for a revolving line of credit of up
to $15,000,000 based on eligible collateral, for working capital purposes. The
agreement contains certain covenants generally associated with this type of
financing including the pledging of substantially all assets as collateral, a
prohibition on the payment of dividends and considers a material adverse change
as a potential event of default. Interest on borrowings is at the Bank of
America prime rate (8 1/2% at December 31, 1995) plus 2% and an unused line fee
of 1/4% is payable at various levels of borrowing. Previous to June, 1995, the
interest rate had been prime plus 2.5%.
In connection with the acquisition described in Note 2 above, the agreement was
amended in May, 1994 to provide for a five year term loan of $7,050,000, extend
the maturity of the agreement by two years to April, 1998 and increase the total
permitted borrowings at any time to $17,500,000 (including the outstanding term
loan). During peak seasonal periods, this limit may be increased to $20,000,000.
The term loan was reduced by $2,465,076 in October, 1994 from the collection of
a note receivable held by the Company. Principal of the term loan is payable in
equal monthly installments over five years, and interest is determined on the
same basis as the revolving line of credit. The agreement was amended in June,
1995 to lower the interest rate and extend the maturity by one year to April,
1999.
Under the terms of the acquisition, the seller received an unsecured note
payable for $1,932,000 at 8% interest. This note is payable in three equal
annual installments which began June 1, 1995.
The Company's Canadian subsidiary has pledged its land and building as security
for a 8.19% note payable which is payable in monthly principal installments of
$3,233 until October, 1998 when the balance is due.
The aggregate payments due on all long-term notes payable during each of the
three years subsequent to December 31, 1996 are: 1997 - $1,553,990; 1998 -
$1,452,931; 1999 - $362,892.
The Company's United Kingdom subsidiary has a line of credit of $932,000 for
short term financing at various interest rates, of which $494,935 was
outstanding at December 31, 1995. This line is secured by the subsidiary's
accounts receivable and inventory.
The weighted average interest rate on short-term borrowings outstanding at
December 31, 1995 and 1994 was 10.4% and 11%, respectively.
<PAGE>
Note 4. Income Taxes
At December 31, 1995, the Company had loss carryforwards for U. S. tax purposes
of approximately $9,609,000 of which $679,000 expires in 2006, $3,834,000 in
2007, $1,703,000 in 2008, $625,000 in 2009 and $2,768,000 in 2010. The Company
also had approximately $1,541,000 of foreign tax loss carryforwards as of
December 31, 1995. Approximately $751,000 of these loss carryforwards will
expire between 1998 and 2002 while the remaining $790,000 can be carried forward
indefinitely. Under the provisions of SFAS No. 109, a valuation allowance is
established if, based on the weight of available evidence, it is more likely
than not that a portion of the deferred asset will not be realized.
Consequently, at December 31, 1995, the Company has established a valuation
allowance against a portion of the above loss carryforwards.
Income (loss) before income taxes is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Domestic .............. $(2,892,596) $(1,151,029) $(1,974,147)
Foreign ............... (89,381) (177,248) (595,759)
----------- ----------- -----------
$(2,981,977) $(1,328,277) $(2,569,906)
=========== =========== ===========
</TABLE>
The components of the net deferred tax asset and liability as of December
31,1995 and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment ........... $ 419,000 $ 443,000
----------- -----------
Total deferred tax liability ............ $ 419,000 $ 443,000
=========== ===========
Deferred tax assets:
Net operating loss carryforwards ........ $ 4,460,000 $ 3,360,000
Valuation allowance for deferred
tax assets ......................... (4,041,000) (2,917,000)
----------- -----------
Net deferred tax asset .................. 419,000 443,000
----------- -----------
Net deferred tax liability .............. $ 0 $ 0
=========== ===========
</TABLE>
<PAGE>
The reconciliation of the (benefit) for federal income tax in the financial
statements and the (benefit) computed at the statutory rates are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
(Benefit) at statutory rate ........ $(l,013,872) $(451,614) $(873,768)
Limitation on utilization of
domestic losses ............... 937,583 347,150 632,110
Limitation on utilization of
foreign losses ................ 30,389 60,264 202,558
Other - Net ........................ 45,900 44,200 39,100
----------- --------- ---------
$ 0 $ 0 $ 0
=========== ========= =========
</TABLE>
Note 5. Leases
The Company rents warehouse and office space under a lease which expires in
2003. The Company is also responsible for the payment of insurance, taxes and
maintenance of the property. The future minimum rental commitment for this lease
is as follows: 1996 - $62,000; 1997 - $62,000; 1998 - $62,000; 1999 - $62,000;
2000 - $62,000; thereafter - $186,000. Rental expense amounted to $305,000 in
1995, $351,000 in 1994 and $342,000 in 1993.
Note 6. Stock Options
Under the 1987 Non-Qualified Stock Option Plan, 240,000 shares were authorized
for issuance. No options have been granted under the Plan.
Under the 1991 Stock Incentive Plan, 200,000 shares of common stock were
authorized for issuance to key employees at an option price which is the fair
market value on the date of the grant. Awards made under the Plan may be options
or contingent options. Contingent options will become exercisable in whole or in
part based upon an evaluation of the employee's performance during the year in
which the option is granted.
Under the 1993 Non-Employee Stock Incentive Plan, 50,000 shares of common stock
were authorized for issuance to non-employee members of the Board of Directors
and certain individuals who provide consulting services to the Company at an
option price which is the fair market value on the date of grant.
Options issued under the Plans to date are exercisable in various installments,
and are exercisable in full after two years from grant.
<PAGE>
Information with respect to options is as follows:
<TABLE>
<CAPTION>
Option Price
Number of Shares per Share
---------------- -------------
<S> <C> <C>
Outstanding - December 31, 1992 43,375 $5.00
Granted 35,750 $4.13 - $5.00
Exercised (500) $5.00
Cancelled (7,000) $5.00
-------
Outstanding - December 31, 1993 71,625 $4.13 - $5.00
Granted 20,700 $4.13
Cancelled (10,000) $4.13 - $5.00
-------
Outstanding - December 31, 1994 82,325 $4.13 - $5.00
Granted 31,000 $3.50 - $3.88
Cancelled (4,000) $3.50 - $5.00
-------
Outstanding - December 31, 1995 109,325 $3.50 - $5.00
=======
</TABLE>
Options on 74,275 shares were exercisable at December 31, 1995.
Note 7. Postretirement Benefits
The Company does not provide any postretirement health care, life insurance or
other welfare benefit programs to current or former employees except that the
Company maintains a defined benefit pension plan for employees who meet certain
eligibility requirements. Benefits under the plan are based on salary and years
of service. For the past three years, no contributions have been required.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost-benefits earned
during the period ............... $ 190,300 $ 182,915 $ 226,383
Interest cost on projected
benefit obligation .............. 291,383 291,992 308,755
Investment return on plan assets ..... (929,056) 204,838 (471,152)
Other ................................ 452,161 (710,709) (31,352)
--------- --------- ---------
Net pension cost (benefit) .......... $ 4,788 $ (30,964) $ 32,634
========= ========= =========
Assumptions:
Discount rate ................... 8% 8% 8%
Compensation increases .......... 5% 5% 5%
Rate of return on assets ........ 8% 8% 8%
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
A reconciliation between the plan's funded status and the pension asset as
recorded in the Company's balance sheet is presented below:
<TABLE>
<S> <C> <C> <C>
Plan's assets at fair value,
primarily stocks and bonds ..... $ 5,115,894 $ 4,295,427 $ 5,121,274
Plan's projected benefit obligation (3,676,167) (3,699,488) (3,898,265)
----------- ----------- -----------
Funded status ..................... 1,439,727 595,939 1,223,009
Unrecognized net asset to be
amortized over 13 years ........ (565,624) (676,531) (787,438)
Unrecognized prior service cost ... 85,093 95,864 106,635
Unrecognized asset (gain)
over expected return ........... (947,985) 727 (557,171)
----------- ----------- -----------
Prepaid (accrued) pension cost .... $ 11,211 $ 15,999 $ (14,965)
=========== =========== ===========
Actuarial present value of
accumulated benefit obligation:
Vested ......................... $ 2,557,886 $ 2,636,587 $ 2,532,562
Not yet vested ................. 160,700 148,055 175,622
----------- ----------- -----------
Accumulated benefit obligation .... $ 2,718,586 $ 2,784,642 $ 2,708,184
=========== =========== ===========
</TABLE>
Note 8. Quarterly Financial Data (Unaudited)
Following is a schedule of key financial data by quarter for the years 1995 and
1994.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Gross Average shares
Quarters Net sales profit Net income Net income outstanding
Ended (000) (000) (000) per share (000)
- -------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
03/31/94 $ 5,241 $ 2,159 $(1,087) $ (.42) 2,573
06/30/94 $ 5,647 $ 1,870 $(2,129) $ (.83) 2,573
09/30/94 $19,057 $ 9,797 $ 1,162 $ .45 2,575
12/31/94 $23,149 $10,727 $ 726 $ .28 2,576
03/31/95 $ 6,282 $ 2,813 $ (994) $ (.39) 2,580
06/30/95 $ 4,704 $ 1,970 $(2,202) $ (.85) 2,580
09/30/95 $16,699 $ 7,804 $ 554 $ .22 2,580
12/31/95 $17,140 $ 6,620 $ (340) $ (.14) 2,581
- ---------------------------------------------------------------------------------------
</TABLE>
Since the Company's business is seasonal in nature, comparisons among quarters
of the year are not necessarily indicative of a trend in the results of
operations, but principally reflect this seasonality.
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
MEM COMPANY, INC. AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Years Ended December 31, 1995, 1994 and 1993
Additions Deductions
Balance at charged to write-off of Balance
beginning costs & uncollectible at end
Description of year expenses accounts of year
- ---- -------- -------- -------- --------
<C> <C> <C> <C> <C>
Allowance for
doubtful
accounts:
1995 $661,654 $368,330 $349,665 $680,319
1994 $450,136 $445,065 $233,547 $661,654
1993 $496,368 $119,098 $165,330 $450,136
</TABLE>
Accounts receivable are stated net of a gross provision for merchandise
returns and other items in the amounts of $4,200,000 and $5,600,000 and
$3,700,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
The net deferred tax asset is stated net of valuation allowances of
$4,041,000, $2,917,000 and $2,467,000 for the years ended December 31, 1995,
1994 and 1993, respectively. After deducting the deferred tax liability, the net
deferred tax asset was $-0- in each of the three years.
Exhibit 3(E)
CERTIFICATE OF CHANGE
OF
MEM COMPANY, INC.
Under Section 805A of the Business Corporation Law
---------------
We, the undersigned, the President and Secretary of MEM COMPANY, INC.,
hereby certify:
1. The name of the Corporation is MEM COMPANY, INC. under which name
it was formed.
2. Its Certificate of Incorporation was filed by the Department of
State on December 13, 1948. A Restated Certificate of
Incorporation, under Section 807 of the Business Corporation Law,
was filed by the Department of State on April 21, 1966, and
amendments thereto were filed by the Department of State of August
3, 1973, March 4, 1977, August 3, 1979, May 1, 1987, June 3, 1988
and June 23, 1988.
3. The Certificate of Incorporation is amended to change the Post
Office address to which the Secretary of State shall mail a copy of
process against the Corporation served upon him.
4. Paragraph SIXTH of the Certificate of Incorporation is amended to
read as follows:
"SIXTH" The Secretary of State of the State of New York is
designated as the agent of the Corporation upon whom process against it may be
served, and the Post Office address to which the Secretary of State shall mail a
copy of any process against the Corporation served upon him is:
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, New York 10036
Attn: Allan R. Williams
5. The aforesaid change to the Certificate of Incorporation was
approved by authorization of the Board of Directors of the
Corporation.
IN WITNESS WHEREOF, this Certificate has been subscribed this 28th day
of April, 1994, by the undersigned, who affirm that the statements made herein
are true under penalties of perjury.
/S/ Margaret A. Powers /S/ Gay A. Mayer
- -------------------------- -----------------------------------
Margaret A. Powers Gay A. Mayer
Secretary President
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-50790) pertaining to the MEM Company, Inc. 1991 Stock Incentive
Plan and (Form S-8 No. 33-79144) pertaining to the MEM Company, Inc. 1993
Non-Employee Stock Incentive Plan of our report dated February 21, 1996, with
respect to the consolidated financial statements and schedule of MEM Company,
Inc. included in the Annual Report (Form 10-K) for the year ended December 31,
1995.
Ernst & Young LLP
Hackensack, New Jersey
March 20, 1996
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an
officer and/or director of MEM Company, Inc. (the "Company") does hereby
constitute and appoint ELIZABETH C. MAYER, GAY A. MAYER AND MICHAEL G. KAZIMIR,
JR. and any of them, his/her true and lawful attorneys or attorney and agents or
agent with full power of authority on his/her behalf to sign his/her name in
such capacity to the Annual Report on Form 10-K for the year ended December 31,
1995, and any and all amendments thereto, to be filed with the Securities and
Exchange Commission and does hereby ratify and confirm all the said attorneys or
attorney and agents or agent may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these
presents this 22nd day of February, 1996.
/S/ Gay A. Mayer /S/ Laurette M. Beach
- ------------------------------ ------------------------------
Gay A. Mayer Laurette M. Beach
/S/ Paul Hallingby, Jr. /S/ Robert E. Mulcahy III
- ------------------------------ ------------------------------
Paul Hallingby, Jr. Robert E. Mulcahy III
/S/ Derek B. Van Dusen /S/ Bruce J. Klatsky
- ------------------------------ ------------------------------
Derek B. Van Dusen Bruce J. Klatsky
/S/ Michael G. Kazimir, Jr.
- ------------------------------
Michael G. Kazimir, Jr.
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