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, 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 November 10, 1997, was 6,163,518.
<PAGE>
MENLEY & JAMES, INC.
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Condensed Consolidated Balance Sheets - September 30, 1996,
December 31, 1996 and September 30, 1997 ........................... 3
Condensed Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 1996 and 1997 ...................... 4
Condensed Consolidated Statements of Cash Flows - Nine Months
Ended September 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
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MENLEY & JAMES, INC.
Condensed Consolidated Balance Sheets
(In thousands)
September 30, December 31, September 30,
1996 1996 1997
------------- ------------ ------------
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ......... $ 1,933 $ 2,205 $ 1,646
Accounts receivable, net of
allowances of $653 and $524
in 1996 and $464 in 1997 ......... 2,623 2,721 3,116
Inventory ......................... 3,826 3,402 3,218
Other current assets .............. 1,161 1,082 1,998
------- ------- -------
Total current assets ............. 9,543 9,410 9,978
Other long-term assets ............. 1,447 1,388 1,412
Product lines, trade names and
packaging designs, net ............ 12,468 12,168 11,387
Long-term deferred tax asset ....... 280 561 62
------- ------- -------
Total assets ..................... $23,738 $23,527 $22,839
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................. $ 975 $ 1,109 $ 1,248
Accrued expenses .................. 365 541 540
Current maturities of long-term debt 1,214 674 40
------- ------- -------
Total current liabilities ......... 2,554 2,324 1,828
Long-term debt ..................... 100 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 ............... (24,431) (24,348) (24,504)
------- ------- -------
Total stockholders' equity ......... 21,084 21,167 21,011
------- ------- -------
Total liabilities and
stockholders' equity ............. $23,738 $23,527 $22,839
======= ======= =======
See accompanying notes.
3
<PAGE>
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,
------------------ -----------------
1996 1997 1996 1997
---- ---- ---- ----
Net sales ..................... $ 3,482 $ 3,546 $10,202 $10,397
Cost of goods sold ............ 1,568 1,714 5,059 5,050
------- ------- ------- -------
Gross profit .................. 1,914 1,832 5,143 5,347
Selling, general and
administrative expenses ...... 1,146 1,244 3,377 4,013
Depreciation and amortization . 375 342 1,120 1,034
------- ------- ------- -------
Income from operations ........ 393 246 646 300
Interest expense (income) ..... 22 (25) 69 (48)
------- ------- ------- -------
Income before income taxes .... 371 271 577 348
Provision for income taxes .... 286 350 698 504
------- ------- ------- -------
Net income (loss) ............. $ 85 $ (79) $ (121) $ (156)
======= ======= ======= =======
Net income (loss) per share
of common stock .............. $ 0.01 $ (0.01) $ (0.02) $ (0.03)
======= ======= ======= =======
Weighted average number of
common shares outstanding .... 6,148 6,148 6,148 6,148
======= ======= ======= =======
See accompanying notes.
4
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MENLEY & JAMES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
-----------------
1996 1997
---- ----
Cash flows from operating activities:
Net loss ................................... $ (121) $ (156)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization ............ 1,120 1,034
Allowance for accounts receivable ........ -- (60)
Amortization of deferred financing costs . 28 28
Deferred income taxes .................... 709 474
Changes in operating assets and liabilities:
Accounts receivable ...................... 510 (335)
Inventory ................................ (1) 184
Prepaid expenses ......................... (156) (891)
Accounts payable ......................... 160 139
Accrued expenses ......................... (208) (1)
------- -------
Net cash provided by operating activities .. 2,041 416
Cash flows used in investing activities:
Other, principally property purchases, net . (248) (305)
Cash flows used in financing activities:
Repayment of borrowings .................... (848) (670)
------- -------
Net increase (decrease) in cash ............. 945 (559)
Cash and cash equivalents,
beginning of period ........................ 988 2,205
------- -------
Cash and cash equivalents, end of period .... $ 1,933 $ 1,646
======= =======
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 nine-month period ended
September 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):
September 30, December 31, September 30,
1996 1996 1997
------------ ------------ ------------
Raw materials ................ $ 1,299 $ 1,078 $ 1,131
Work in process .............. 196 191 596
Finished goods ............... 2,331 2,133 1,491
------- ------- -------
$ 3,826 $ 3,402 $ 3,218
======= ======= =======
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 third quarter ended September 30, 1997 were $3.5 million,
an increase of $64 thousand, compared to $3.5 million for the third quarter
ended September 30, 1996. Sales for the third 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
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Derifil, an internal deodorant, and Capsaicin, a generic version of Zostrix
cream. Net sales for these brands totaled $519 thousand, an increase of
$183 thousand over the three months ending September 30, 1996. Net sales of
the Company's remaining brands decreased a net of $119 thousand compared to
the three months ended September 30, 1996, principally as the result of
decreased sales of Benzedrex, which declined $122 thousand. The sales
decline of these remaining brands is due to continued competition and trade
destocking pressures. Net sales for the nine months ended September 30, 1997
were $10.4 million, compared to $10.2 million for the comparable period of
1996. Year-to-date sales of products under the sales and marketing
agreements were $1.2 million, an increase of $565 thousand over the same
nine-month period a year ago. Net sales for the nine months ended September
30, 1997 for all other brands decreased $370 thousand compared to the nine
months ended September 30, 1996. This decrease is principally due to the
sales decrease of Benzedrex and Garfield totaling $617 thousand.
Cost of goods sold for the third quarter ending September 30, 1997 was $1.7
million compared to $1.6 million in the respective 1996 period, representing
48% and 45% of net sales in their respective periods. The increase in the
cost of goods sold, as a percentage of sales for the third quarter is a
result of the change in mix-of-products sold. Year-to-date cost of goods
sold was $5.1 million, or 49% of net sales in 1997, compared to $5.1 million,
or 50% of net sales for 1996. The decrease in the cost of goods sold, as a
percentage of sales for the nine months ended September 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 nine month
periods of 1997 were $1.2 million and $4.0 million, an increase of $98 and
$636 thousand compared to the respective 1996 period. The increase for the
nine months ended September 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 $25 thousand for the third quarter of 1997, compared to
interest expense, including finance cost amortization, of $22 thousand for
the prior year period. There was no bank debt outstanding at September 30,
1997. Bank debt outstanding at September 30, 1996 was $1.3 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 $350 thousand in tax expense
for the third quarter of 1997, and $504 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 $591 thousand in its
condensed consolidated balance sheet as of September 30, 1997, which is
primarily made up of two items, net operating loss carryforwards and future
deductible expenses.
7
<PAGE>
For the third quarter ended September 30, 1997, the Company had a net loss
of $79 thousand or $0.01 per share compared to net income of $85 thousand or
$0.01 per share for the third quarter ended September 30, 1996.
Liquidity and Capital Resources
At September 30, 1997, the Company had working capital of $8.2 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, 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 $1.3 million since
September 30, 1996.
As of September 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 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, 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: November 13, 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 September 30, 1997 (unaudited) and the
Condensed Consolidated Statement of Operations for the Nine Months Ended
September 30, 1997 (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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,646
<SECURITIES> 0
<RECEIVABLES> 3,580
<ALLOWANCES> 464
<INVENTORY> 3,218
<CURRENT-ASSETS> 9,978
<PP&E> 1,412
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,839
<CURRENT-LIABILITIES> 1,828
<BONDS> 0
0
0
<COMMON> 61
<OTHER-SE> 20,950
<TOTAL-LIABILITY-AND-EQUITY> 22,839
<SALES> 10,397
<TOTAL-REVENUES> 10,397
<CGS> 5,050
<TOTAL-COSTS> 5,050
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (48)
<INCOME-PRETAX> 348
<INCOME-TAX> 504
<INCOME-CONTINUING> (156)
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<CHANGES> 0
<NET-INCOME> (156)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
