<PAGE>
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, 1997
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 11, 1997, was 6,148,518.
<PAGE>
MENLEY & JAMES, INC.
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Condensed Consolidated Balance Sheets - June 30, 1996,
December 31, 1996 and June 30, 1997 ................................. 3
Condensed Consolidated Statements of Operations - Three Months
and Six Months Ended June 30, 1996 and 1997.......................... 4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1996 and 1997......................................... 5
Notes to Condensed Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 6
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
2
<PAGE>
MENLEY & JAMES, INC.
Condensed Consolidated Balance Sheets
(In thousands)
June 30, December 31, June 30,
1996 1996 1997
------- ----------- --------
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents........ $ 1,464 $ 2,205 $ 1,941
Accounts receivable, net of
allowances of $642 and $524
in 1996 and $461 in 1997........ 2,393 2,721 2,164
Inventory........................ 3,879 3,402 3,520
Other current assets............. 1,097 1,082 1,716
----- ----- -----
Total current assets............. 8,833 9,410 9,341
Other long-term assets............ 1,438 1,388 1,387
Product lines, trade names and
packaging designs, net........... 12,781 12,168 11,640
Long-term deferred tax asset...... 565 561 407
------ ------ ------
Total assets..................... $23,617 $23,527 $22,775
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................. $ 677 $ 1,109 $ 1,182
Accrued expenses.................. 323 541 460
Current maturities of long-term debt 1,214 674 43
----- ----- -----
Total current liabilities......... 2,214 2,324 1,685
Long-term debt..................... 404 36 --
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 1996 and 1997.......... 61 61 61
Additional paid-in capital........ 45,454 45,454 45,454
Accumulated deficit............... (24,516) (24,348) (24,425)
------ ------ ------
Total stockholders' equity......... 20,999 21,167 21,090
------ ------ ------
Total liabilities and
stockholders' equity............. $23,617 $23,527 $22,775
====== ====== ======
See accompanying notes.
3
<PAGE>
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,
------------------ ----------------
1996 1997 1996 1997
---- ---- ---- ----
Net sales......................... $ 3,180 $ 3,280 $ 6,720 $ 6,851
Cost of goods sold................ 1,633 1,738 3,491 3,336
----- ----- ----- -----
Gross profit...................... 1,547 1,542 3,229 3,515
Selling, general and
administrative expenses.......... 1,099 1,180 2,231 2,769
Depreciation and amortization..... 373 342 745 692
----- ----- ----- -----
Income from operations............ 75 20 253 54
Interest expense (income)......... 19 (28) 47 (23)
----- ----- ----- -----
Income before income taxes........ 56 48 206 77
Provision for income taxes........ 299 128 412 154
----- ----- ----- -----
Net loss.......................... $ (243) $ (80) $ (206) $ (77)
====== ====== ====== ======
Net loss per share
of common stock.................. $ (0.04) $ (0.01) $(0.03) $ (0.01)
===== ===== ===== ======
Weighted average number of common
shares outstanding.............. 6,148 6,148 6,148 6,148
===== ===== ===== =====
See accompanying notes.
4
<PAGE>
MENLEY & JAMES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 30,
----------------
1996 1997
---- ----
Cash flows from operating activities:
Net loss.............................. $ (206) $ (77)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and amortization........ 745 692
Allowance for accounts receivable.... (11) (63)
Amortization of deferred financing costs 18 28
Deferred income taxes................ 412 154
Changes in operating assets and liabilities:
Accounts receivable................... 751 620
Inventory............................. (54) (118)
Prepaid expenses...................... (81) (634)
Accounts payable...................... (138) 73
Accrued expenses...................... (250) (81)
---- ----
Net cash provided by operating activities 1,186 594
Cash flows used in investing activities:
Other, principally property
purchases, net...................... (166) (191)
Cash flows used in financing activities:
Repayment of borrowings............... (544) (667)
---- ----
Net increase (decrease) in cash........ 476 (264)
Cash and cash equivalents,
beginning of period................... 988 2,205
----- -----
Cash and cash equivalents, end of period $ 1,464 $ 1,941
===== =====
See accompanying notes.
5
<PAGE>
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,
1996. Operating results for the six month period ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
NOTE A - INVENTORIES
Inventories consist of the following (in thousands):
June 30, December 31, June 30,
1996 1996 1997
------- ----------- -------
Raw materials................... $ 1,172 $ 1,078 $ 1,288
Work in process................. 236 191 580
Finished goods.................. 2,471 2,133 1,652
----- ----- -----
$ 3,879 $ 3,402 $ 3,520
===== ===== =====
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.
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Net sales for the second quarter ended June 30, 1997 were $3.3 million, an
increase of $100 thousand, compared to $3.2 million for the second quarter
ended June 30, 1996. Sales for the second quarter 1997 benefitted from sales
of products under the Company's sales and marketing agreements which include:
Humibid GC, a nonprescription formulation of the Rx drug, Humibid;
6
<PAGE>
Derifil, an internal deodorant; and Capsaicin, a generic version of Zostrix
cream. Net sales for these brands totaled $271 thousand, an increase of $254
thousand over the three months ending June 30, 1996. Net sales of the
Company's remaining brands decreased a net of $152 thousand compared to the
three months ended June 30, 1996, principally as the result of decreased
sales of AsthmaHaler and Garfield, which declined $183 thousand. The sales
decline of these remaining brands is due to continued competition and trade
destocking pressures. Net sales for the six months ended June 30, 1997 were
$6.9 million, compared to $6.7 million for the comparable period of 1996.
Year-to-date sales of products under the sales and marketing agreements were
$665 thousand, an increase of $382 thousand over the same six month period a
year ago. Net sales for the six months ended June 30, 1997 for all other
brands decreased $250 thousand compared to the six months ended June 30,
1996. This decrease is principally due to the sales decrease of Benzedrex
and Garfield totaling $484 thousand.
Cost of goods sold for the second quarter ending June 30, 1997 was $1.7
million compared to $1.6 million in the respective 1996 period, representing
53% and 51% of net sales in their respective periods. The increase in the cost
of goods sold, as a percentage of sales for the second quarter is a result of
the change in mix-of-products sold. Year-to-date cost of goods sold was $3.3
million, or 49% of net sales in 1997, compared to $3.5 million, or 52% of net
sales for 1996. The decrease in the cost of goods sold, as a percentage of
sales for the six months ended June 30, 1997, is a result of a decrease in
returns and allowances, along with the change in mix-of-products sold.
Selling, general and administrative expenses for the three and six month
periods of 1997 were $1.2 million and $2.8 million, an increase of $81 and
$538 thousand compared to the respective 1996 period. The increase for the
six months ended June 30, 1997 is primarily due to an increase in marketing
costs associated with the products under the Company's sales and marketing
agreements. 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 income was $28 thousand for the second quarter of 1997, compared to
interest expense, including finance cost amortization, of $19 thousand for
the prior year period. The Company has interest income for 1997 due to lower
outstanding debt. There was no bank debt outstanding at June 30, 1997. Bank
debt outstanding at June 30, 1996 was $1.6 million.
The Company, at December 31, 1996, had a net operating loss carryforward for
federal income tax purposes of approximately $6.8 million which may be used
to offset future taxable income. These loss carryforwards expire in the years
2005 through 2008. The Company recognized $128 thousand in tax expense for
the second quarter of 1997, and $154 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 $911 thousand in its
condensed consolidated balance sheet as of June 30, 1997, which is primarily
made up of two items, net operating loss carryforwards and future deductible
expenses.
7
<PAGE>
For the second quarter ended June 30, 1997, the Company had a net loss of $80
thousand or $0.01 per share compared to a net loss of $243 thousand or $0.04
per share for the second quarter ended June 30, 1996.
Liquidity and Capital Resources
At June 30, 1997, the Company had working capital of $7.7 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 June 30, 1997, the Company had no amount
outstanding under the revolving credit facility. The amount of borrowing, if
any, and the subsequent repayments under the facility depend on 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.
All outstanding debt under the term loan was paid on January 23, 1997, and
the Company has no bank debt outstanding, a reduction of $1.6 million since
June 30, 1996.
As of June 30, 1997, the Company's primary cash requirements are for its
normal operating activities. The Company's strategic focus in the year ahead
is to grow by building a brand-name health care products business. The
Company's strategy is to develop a new product or revitalize an existing
brand, which will receive marketing funds from the cash flow generated from
other products, and/or to purchase a new brand or company, preferably in the
Nutraceutical vitamin and herb supplement market. 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
Due to other commitments, Franklin W. Krum has
resigned from the Company's Board of Directors
effective August 13, 1997.
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, 1997.
8
<PAGE>
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 14, 1997 /s/ William W. Yeager
---------------------
William W. Yeager
Chief Financial Officer
(and duly authorized
officer of the registrant)
9
<PAGE>
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.
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the Condensed
Consolidated Balance Sheet at June 30, 1997 (unaudited) and the Condensed
Consolidated Statement of Operations for the Six Months Ended June 30, 1997
(unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,941
<SECURITIES> 0
<RECEIVABLES> 2,625
<ALLOWANCES> 461
<INVENTORY> 3,520
<CURRENT-ASSETS> 9,341
<PP&E> 1,387
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,775
<CURRENT-LIABILITIES> 1,685
<BONDS> 0
0
0
<COMMON> 61
<OTHER-SE> 21,029
<TOTAL-LIABILITY-AND-EQUITY> 22,775
<SALES> 6,851
<TOTAL-REVENUES> 6,851
<CGS> 3,336
<TOTAL-COSTS> 3,336
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (23)
<INCOME-PRETAX> 77
<INCOME-TAX> 154
<INCOME-CONTINUING> (77)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (77)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
