<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 September 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 November 8, 1996, was 6,148,518.
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MENLEY & JAMES, INC.
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Condensed Consolidated Balance Sheets - September 30, 1995,
December 31, 1995 and September 30, 1996 .......................... 3
Condensed Consolidated Statements of Operations - Three Months
and Nine Months Ended September 30, 1995 and 1996 ................. 4
Condensed Consolidated Statements of Cash Flows - Nine Months
Ended September 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 ........................................... 9
Item 2. Changes in Securities ....................................... 9
Item 3. Defaults Upon Senior Securities ............................. 9
Item 4. Submission of Matters to a Vote of Security Holders ......... 9
Item 5. Other Information ........................................... 9
Item 6. Exhibits and Reports on Form 8-K ............................ 9
Signature ............................................................ 10
Exhibit Index ........................................................ 11
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MENLEY & JAMES, INC.
Condensed Consolidated Balance Sheets
(In thousands)
September 30, December 31, September 30,
1995 1995 1996
------------ ----------- ------------
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents .......... $ 636 $ 988 $ 1,933
Accounts receivable, net of
allowances of $593 and $653 in
1995 and $653 in 1996 ............ 3,493 3,133 2,623
Inventory .......................... 4,168 3,825 3,826
Other current assets ............... 1,443 1,296 1,161
------- ------- -------
Total current assets ............... 9,740 9,242 9,543
Other long-term assets ............... 1,452 1,525 1,447
Product lines, trade names and
packaging designs, net ............. 13,559 13,281 12,468
Long-term deferred tax asset ......... 845 707 280
------- ------- -------
Total assets ....................... $25,596 $24,755 $23,738
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................. $ 1,138 $ 815 $ 975
Accrued expenses .................. 600 573 365
Current maturities of long-term debt 1,200 1,157 1,214
------- ------- -------
Total current liabilities .......... 2,938 2,545 2,554
Long-term debt ....................... 1,500 1,005 100
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 ................ (24,357) (24,310) (24,431)
------- ------- -------
Total stockholders' equity ........... 21,158 21,205 21,084
------- ------- -------
Total liabilities and stockholders'
equity ............................ $25,596 $24,755 $23,738
======= ======= =======
See accompanying notes.
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MENLEY & JAMES, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
------------------ -----------------
Net sales ........................ $ 3,429 $ 3,482 $ 10,449 $ 10,202
Cost of goods sold ............... 1,730 1,568 5,141 5,059
------- ------- -------- --------
Gross profit ..................... 1,699 1,914 5,308 5,143
Selling, general and
administrative expenses ........ 1,106 1,146 3,667 3,377
Depreciation and amortization .... 365 375 1,213 1,120
------- ------- -------- --------
Income from operations ........... 228 393 428 646
Interest expense ................. 54 22 189 69
------- ------- -------- --------
Income before income taxes ....... 174 371 239 577
Provision for income taxes ....... 122 286 167 698
------- ------- -------- --------
Net income (loss) ................ $ 52 $ 85 $ 72 $ (121)
======= ======= ======== ========
Net income (loss) per share of
common stock ................... $ 0.01 $ 0.01 $ 0.01 $ (0.02)
======= ======= ======= =======
Weighted average number of common
shares outstanding ............. 6,148 6,148 6,148 6,148
====== ====== ====== ======
See accompanying notes.
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MENLEY & JAMES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
1995 1996
-----------------------
Cash flows from operating activities:
Net income (loss) ....................... $ 72 $ (121)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization .......... 1,213 1,120
Amortization of deferred financing costs 28 28
Deferred income taxes .................. 167 709
Changes in operating assets and liabilities:
Accounts receivable .................... 212 510
Inventory .............................. 434 (1)
Prepaid expenses ....................... 8 (156)
Accounts payable ....................... 62 160
Accrued expenses ....................... (411) (208)
------- -------
Net cash provided by operating activities 1,785 2,041
Cash flows used in investing activities:
Other, principally property purchases, net (100) (248)
Cash flows used in financing activities:
Repayment of borrowings ................. (1,600) (848)
------- -------
Net increase in cash ..................... 85 945
Cash and cash equivalents, beginning of period 551 988
------- -------
Cash and cash equivalents, end of period $ 636 $ 1,933
======= =======
See accompanying notes.
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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 nine-month period ended September 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):
September 30, December 31, September 30,
1995 1995 1996
------------ ----------- ------------
Raw materials $ 994 $ 1,253 $ 1,299
Work in process 391 307 196
Finished goods 2,783 2,265 2,331
------ ------ ------
$ 4,168 $ 3,825 $ 3,826
====== ====== ======
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.
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Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net sales for the three months ended September 30, 1996 were $3.5 million,
an increase of $53 thousand, compared to $3.4 million for the three months
ended September 30, 1995. The increase in net sales in the third quarter of
1996 was due to sales resulting from the Company's 1996 sales and marketing
agreements and increased sales primarily of Benzedrex and Duo. These sales
increases were partially offset by a continuation in the decline in sales
from a majority of the Company's brands due to continued competition and
trade destocking pressure. The three sales and marketing agreements include
Humibid GC, a nonprescription formulation of the Rx drug Humibid ; Derifil,
an internal deodorant; and Capsaicin, a generic version of Zostrix cream.
Net sales for the nine months ended September 30, 1996 were $10.2 million
compared to $10.4 million for the comparable 1995 period.
Cost of goods sold for the three months ending September 30, 1996 was $1.6
million compared to $1.7 million in the respective 1995 period, representing
45% and 50% of net sales in their respective periods. The decrease in the
cost of goods sold, as a percentage of sales for the three months ended
September 30, 1996, is a result of a decrease in returns and allowances,
along with the mix-of-products sold. Cost of goods sold for the nine months
ending September 30, 1996 was $5.1 million, or 50% of net sales, compared to
$5.1 million, or 49% of net sales for the same period in 1995.
Selling, general and administrative expenses for the three- and nine-month
periods of 1996 were $1.2 million and $3.4 million, respectively, an increase
of $40 thousand and a decrease of $290 thousand compared to the respective
1995 periods. The increase for the three months ended September 30, 1996, is
primarily due to an increase in marketing costs associated with the products
under the Company's 1996 sales and marketing agreements. The year-to-date
September 30, 1996 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 $22 thousand for
the third quarter of 1996, compared to $54 thousand for the prior year
period. Interest expense was $69 thousand for the nine months ended
September 30, 1996 compared to $189 thousand for the prior year period.
The decrease for each 1996 period is due to lower outstanding debt. Bank
debt outstanding at September 30, 1996 was $1.3 million compared to $2.7
million outstanding at September 30, 1995.
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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 $286
thousand in tax expense for the third quarter of 1996, and $698 thousand for
the nine months ended September 30, 1996. 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 $784 thousand in its condensed
consolidated balance sheet as of September 30, 1996, which is primarily made
up of two items, net operating loss carryforwards and future deductible
expenses.
For the third quarter ended September 30, 1996, the Company had net income
of $85 thousand or $0.01 per share compared to a net income of $52 thousand
or $0.01 per share, for the third quarter ended September 30, 1995. For the
nine months ended September 30, 1996, the Company had a net loss of $121
thousand, or $0.02 per share, compared to net income of $72 thousand, or
$0.01 per share, during the nine months ended September 30, 1995.
Liquidity and Capital Resources
At September 30, 1996, the Company had working capital of $7.0 million.
Working capital was provided by its operations and may also be provided by
the periodic 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 September 30, 1996, the Company had no
amount outstanding under the revolving credit facility. The amount of
borrowing, if any, 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 September 30, 1996 the Company had $1.3 million of debt outstanding, a
reduction of $1.4 million since September 30, 1995.
As of September 30, 1996, 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.
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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 September 30, 1996.
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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: November 12, 1996 /s/ William W. Yeager
William W. Yeager
Chief Financial Officer
(and duly authorized
officer of the registrant)
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Exhibit Index
Exhibit
No. Description
27 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only
and not filed.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at September 30, 1996 (unaudited) and
the Condensed Consolidated Statement of Operations for the Nine Months Ended
September 30, 1996 (unaudited) and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,933
<SECURITIES> 0
<RECEIVABLES> 3,276
<ALLOWANCES> 653
<INVENTORY> 3,826
<CURRENT-ASSETS> 9,543
<PP&E> 1,447
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,738
<CURRENT-LIABILITIES> 2,554
<BONDS> 100
0
0
<COMMON> 61
<OTHER-SE> 21,023
<TOTAL-LIABILITY-AND-EQUITY> 23,738
<SALES> 10,202
<TOTAL-REVENUES> 10,202
<CGS> 5,059
<TOTAL-COSTS> 5,059
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> 577
<INCOME-TAX> 698
<INCOME-CONTINUING> (121)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (121)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
