<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File Number: 000-19788
MENLEY & JAMES, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2621602
(State of incorporation) (I.R.S. Employer
Identification No.)
100 Tournament Drive
Horsham, Pennsylvania 19044
(Address of principal executive office)
(215) 441-6500
Registrant's telephone number
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 [ ]
The number of shares of the registrant's common stock, par value $.01
per share, outstanding as of August 9, 1996, was 6,148,518.
<PAGE> 2
MENLEY & JAMES, INC.
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Condensed Consolidated Balance Sheets - June 30, 1995,
December 31, 1995 and June 30, 1996 . . . . . . .. . . . . . . . . 3
Condensed Consolidated Statements of Operations -
Three Months and Six Months Ended June 30, 1995 and 1996 . . . . 4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1995 and 1996 . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 8
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . 8
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security Holders . . . 8
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 8
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 8
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
<PAGE> 3
MENLEY & JAMES, INC.
Condensed Consolidated Balance Sheets
(In thousands)
June 30, December 31, June 30,
1995 1995 1996
----------- ----------- ---------
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents . . . . . $ 662 $ 988 $ 1,464
Accounts receivable, net of allowances
of $633 and $653 in 1995 and $642
in 1996 . . . . . . . . . . . . . . 3,042 3,133 2,393
Inventory . . . . . . . . . . . . . 4,348 3,825 3,879
Other current assets . . . . . . . . 1,500 1,296 1,097
------- ------- -------
Total current assets . . . . . . . . 9,552 9,242 8,833
Other long-term assets . . . . . . . . 1,430 1,525 1,438
Product lines, trade names and
packaging designs, net . . . . . . . . 13,931 13,281 12,781
Long-term deferred tax asset . . . . . 967 707 565
------- ------- -------
Total assets . . . . . . . . . . . . $25,880 $24,755 $23,617
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . $ 995 $ 815 $ 677
Accrued expenses . . . . . . . . . . . 779 573 323
Current maturities of long-term debt . 1,200 1,157 1,214
----- ----- -----
Total current liabilities . . . . . . . 2,974 2,545 2,214
Long-term debt . . . . . . . . . . . . 1,800 1,005 404
Preferred stock, $1 par value,
authorized 5,000,000 shares,
none issued and outstanding . . . . . . -- -- --
Stockholders' equity:
Common stock, $.01 par value,
authorized 15,000,000 shares,
issued and outstanding 6,148,518
shares in 1995 and 1996 . . . . . . . . 61 61 61
Additional paid-in capital . . . . . . . 45,454 45,454 45,454
Accumulated deficit . . . . . . . . . . (24,409) (24,310) (24,516)
------- ------- -------
Total stockholders' equity. . . . . . . . 21,106 21,205 20,999
------ ------ ------
Total liabilities and
stockholders' equity . . . . . . . . . $25,880 $24,755 $23,617
====== ====== ======
See accompanying notes.
<PAGE> 4
MENLEY & JAMES, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1996 1995 1996
------------------- ----------------
Net sales . . . . . . . . . . . $ 3,620 $ 3,180 $ 7,020 $ 6,720
Cost of goods sold . . . . . . 1,782 1,633 3,411 3,491
----- ----- ----- -----
Gross profit . . . . . . . . . 1,838 1,547 3,609 3,229
Selling, general and
administrative expenses. . . . 1,331 1,099 2,561 2,231
Depreciation and amortization . 414 373 848 745
----- ----- ----- -----
Income from operations . . . . 93 75 200 253
Interest expense . . . . . . . 61 19 135 47
----- ----- ----- -----
Income before income taxes . . 32 56 65 206
Provision for income taxes . . 22 299 45 412
----- ----- ----- -----
Net income (loss) . . . . . . $ 10 $ (243) $ 20 $ (206)
===== ===== ===== =====
Net income (loss) per share
of common stock . . . . . . . $ 0.00 $ (0.04) $ 0.00 $ (0.03)
===== ===== ===== =====
Weighted average number of
common shares outstanding 6,148 6,148 6,148 6,148
===== ===== ===== =====
See accompanying notes.
<PAGE> 5
MENLEY & JAMES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 30,
1995 1996
------------------
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . $ 20 $ (206)
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depreciation and amortization . . . . 848 745
Amortization of deferred
financing costs . . . . . . . . . . . 19 18
Deferred income taxes . . . . . . . . 45 412
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . 664 740
Inventory . . . . . . . . . . . . . . 254 (54)
Prepaid expenses . . . . . . . . . . . (49) (81)
Accounts payable . . . . . . . . . . . (81) (138)
Accrued expenses . . . . . . . . . . . (232) (250)
----- -----
Net cash provided by
operating activities . . . . . . . . . 1,488 1,186
Cash flows used in investing activities:
Other, principally property
purchases, net . . . . . . . . . . . (77) (166)
Cash flows used in financing activities:
Repayment of borrowings . . . . . . . . (1,300) (544)
----- -----
Net increase in cash . . . . . . . . . . 111 476
Cash and cash equivalents,
beginning of period . . . . . . . . . . 551 988
----- -----
Cash and cash equivalents,
end of period . . . . . . . . . . . . . $ 662 $ 1,464
======= =======
See accompanying notes.
<PAGE> 6
MENLEY & JAMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
Operating results for the six-month period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
NOTE A - INVENTORIES
Inventories consist of the following (in thousands):
June 30, December 31, June 30,
1995 1995 1996
Raw materials . . . . . . . . $ 950 $ 1,253 $ 1,172
Work in process . . . . . . . 382 307 236
Finished goods . . . . . . . 3,016 2,265 2,471
----- ----- -----
$ 4,348 $ 3,825 $ 3,879
===== ===== =====
NOTE B - INCOME TAXES
The effective tax rate exceeds the statutory federal tax rate primarily as a
result of the amortization of product lines and trade names which is not
deductible for tax purposes.
<PAGE> 7
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net sales for the three months ended June 30, 1996 were $3.2 million, a
decrease of $440 thousand, compared to $3.6 million for the three months ended
June 30, 1995. Net sales for the six months ended June 30, 1996 were $6.7
million compared to $7.0 million for the comparable 1995 period. The decrease
in net sales is a continuation in the decline in sales trends due to continued
competition and trade destocking pressure.
Cost of goods sold for the second quarter of 1996 was $1.6 million compared to
$1.8 million in 1995, representing 51% and 49% of net sales in their
respective periods. Year-to-date cost of goods sold was $3.5 million, or 52%
of net sales, compared to $3.4 million, or 49% of net sales for 1995. The
increase in the cost of goods sold, as a percentage of sales, is primarily a
result of the mix-of-products sold.
Selling, general and administrative expenses for the three- and six-month
periods of 1996 were $1.1 million and $2.2 million, a decrease of $232
thousand and $330 thousand compared to the respective 1995 periods. This
decrease is primarily related to cost reduction efforts. Selling, general and
administrative expenses, as a percentage of sales, may fluctuate quarter to
quarter based upon the timing of these expenditures and the level of sales
within a quarter.
Interest expense, including finance cost amortization, was $19 thousand for
the second quarter of 1996, compared to $61 thousand for the prior year
period. Year-to-date interest expense was $47 thousand for 1996 compared to
$135 thousand for the prior year period. The decrease is due to lower
outstanding debt. Bank debt outstanding at June 30, 1996 was $1.6 million
compared to $3.0 million outstanding at June 30, 1995.
The Company, at December 31, 1995, had a net operating loss carryforward for
federal income tax purposes of approximately $7.7 million which may be used to
offset future taxable income. These net operating loss carryforwards will
expire during the years 2005 through 2008. The Company recognized $299
thousand in tax expense for the second quarter of 1996, and $412 thousand
year-to-date. The effective tax rate exceeds the statutory federal tax rate
primarily as a result of the amortization of product lines and trade names
which is not deductible for tax purposes. The Company has net deferred tax
assets of $1.1 million in its condensed consolidated balance sheet as of June
30, 1996, which is primarily made up of two items, net operating loss
carryforwards and future deductible expenses.
For the quarter ended June 30, 1996, the Company had a net loss of $243
thousand or $0.04 per share compared to a net income of $10 thousand or $0.00
per share, for the quarter ended June 30, 1995. For the six months ended June
30, 1996, the Company had a net loss of $206 thousand, or $0.03 per share,
compared to net income of $20 thousand, or $0.00 per share, during the six
months ended June 30, 1995.
<PAGE> 8
Liquidity and Capital Resources
At June 30, 1996, the Company had working capital of $6.6 million. Working
capital was provided by its operations and may also be provided by the
seasonal use of its revolving credit facility. The revolving credit facility
has a maximum borrowing limit of $3.0 million and terminates on June 30, 1998,
unless extended. At June 30, 1996, the Company had no amount outstanding
under the revolving credit facility. The amount of borrowing, if used, and
the subsequent repayments under the facility would be a result of the
seasonality of the Company's sales, marketing plans and profits. Also,
extended payment date terms consistent with standard industry practice, which
are offered to the Company's customers under marketing programs, create
seasonal changes in the Company's cash flow. These extended payment programs
are directly related to the seasonal promotion of the Company's cough and cold
brands.
As of June 30, 1996 the Company had $1.6 million of debt outstanding, a
reduction of $1.4 million since June 30, 1995.
At the present time, the Company's primary cash requirements are for its
normal operating activities and debt principal and interest service, including
required current principal repayments of $1.2 million on the Company's term
loan. The Company also conducts an ongoing program of evaluating
opportunities to acquire additional products to enhance its product portfolio.
Such acquisitions may take a variety of forms including licensing
arrangements, purchases of trademarks and related inventories, acquisitions of
business units or sales and marketing agreements. Management believes that
cash flow from operations and current and future borrowing capacity will be
sufficient to fund the Company's operating and capital requirements for the
foreseeable future.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits None
b. Reports on Form 8-K
The registrant was not required to file any current reports
on Form 8-K during the three months ended June 30, 1996.
<PAGE> 9
SIGNATURE
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.
MENLEY & JAMES, INC.
Date: August 13, 1996 William W. Yeager
William W. Yeager
Chief Financial Officer
(and duly authorized
officer of the registrant)
