<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 March 31, 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 May 1, 1997, 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 - March 31, 1996,
December 31, 1996 and March 31, 1997 . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations - Three Months
Ended March 31, 1996 and 1997 . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 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 . . . . 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
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . 10
2
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MENLEY & JAMES, INC.
Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31, March 31,
1996 1996 1997
----------- ------------ ----------
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents . . . . . $ 2,027 $ 2,205 $ 2,196
Accounts receivable, net of
allowances of $635 and $524
in 1996 and $488 in 1997 . . . . 1,894 2,721 2,180
Inventory . . . . . . . . . . . . . 3,872 3,402 3,849
Other current assets . . . . . . . 1,334 1,082 1,069
------- ------- -------
Total current assets . . . . . . . 9,127 9,410 9,294
Other long-term assets . . . . . . . 1,527 1,388 1,378
Product lines, trade names and
packaging designs, net . . . . . . . 13,009 12,168 11,899
Long-term deferred tax asset . . . . . 594 561 535
------- ------- -------
Total assets . . . . . . . . . . . $24,257 $23,527 $23,106
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . $ 812 $ 1,109 $ 1,498
Accrued expenses . . . . . . . . . . 282 541 392
Current maturities of long-term debt 1,214 674 46
------- ------- -------
Total current liabilities . . . . . . 2,308 2,342 1,936
Long-term debt . . . . . . . . . . . . 707 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 . . . . . . . . . (24,273) (24,348) (24,345)
------- ------- -------
Total stockholders' equity . . . . . . 21,242 21,167 21,170
------- ------- -------
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . $24,257 $23,527 $23,106
======= ======= =======
See accompanying notes.
3
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MENLEY & JAMES, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
1996 1997
------- -------
Net sales . . . . . . . . . . . . . . . . . . . $ 3,540 $ 3,571
Cost of goods sold . . . . . . . . . . . . . . . 1,858 1,598
------- -------
Gross profit . . . . . . . . . . . . . . . . . . 1,682 1,973
Selling, general and administrative expenses . . 1,132 1,589
Depreciation and amortization . . . . . . . . . 372 350
------- -------
Income from operations . . . . . . . . . . . . . 178 34
Interest expense . . . . . . . . . . . . . . . . 28 5
------- -------
Income before income taxes . . . . . . . . . . . 150 29
Provision for income taxes . . . . . . . . . . . 113 26
------- -------
Net income . . . . . . . . . . . . . . . . . . $ 37 $ 3
======= =======
Net income per share of common stock . . . . . . $ 0.01 $ 0.00
======= =======
Weighted average number of common
shares outstanding . . . . . . . . . . . . . . 6,148 6,148
======= =======
See accompanying notes.
4
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MENLEY & JAMES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1997
------- -------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . $ 37 $ 3
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . 372 350
Allowance for accounts receivable . . . . (18) (36)
Amortization of deferred financing costs . 9 28
Deferred income taxes . . . . . . . . . . 113 26
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . 1,257 577
Inventory . . . . . . . . . . . . . . . . . (47) (447)
Prepaid expenses . . . . . . . . . . . . . (48) 13
Accounts payable . . . . . . . . . . . . . (3) 389
Accrued expenses . . . . . . . . . . . . . (291) (149)
------- ------
Net cash provided by operating activities . . 1,381 754
Cash flows used in investing activities:
Other, principally property purchases, net . (101) (99)
Cash flows used in financing activities:
Repayment of borrowings . . . . . . . . . . . (241) (664)
------ ------
Net increase (decrease) in cash . . . . . . . 1,039 (9)
Cash and cash equivalents, beginning of period 988 2,205
------ ------
Cash and cash equivalents, end of period . . . $ 2,027 $ 2,196
====== ======
See accompanying notes.
5
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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, 1996. Operating results for the three-month period ended
March 31, 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):
March 31, December 31, March 31,
1996 1996 1997
-------- ----------- --------
Raw materials. . . . . . . . . . . $ 1,186 $ 1,078 $ 1,273
Work in process . . . . . . . . . 197 191 690
Finished goods . . . . . . . . . . 2,489 2,133 1,886
------- ------- -------
$ 3,872 $ 3,402 $ 3,849
======= ======= =======
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.
6
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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 March 31, 1997 were $3.6 million,
compared to $3.5 million for the comparable period of 1996. Sales for 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; Derifil, an internal deodorant; and Capsaicin, a generic
version of Zostrix cream. Net sales for these brands totaled $394
thousand, an increase of $129 thousand over the three months ending March
31, 1996. Net sales of the Company's remaining brands decreased a net $98
thousand compared to the three months ended March 31, 1996, principally as
the result of decreased sales of Garfield, which declined $157 thousand.
The sales decline of these remaining brands is due to continued competition
and trade destocking pressures.
Cost of goods sold for the three months ending March 31,1997 was $1.6
million compared to $1.9 million in the respective 1996 period, representing
45% and 52% 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
March 31, 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-month period of
1997 was $1.6 million, an increase of $457 thousand compared to the
respective 1996 period. The increase for the three months ended March 31,
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 expense, including finance cost amortization, was $5 thousand for
the first quarter of 1997, compared to $28 thousand for the prior year
period. The decrease for 1997 is due to lower outstanding debt. There was
no bank debt outstanding at March 31, 1997. Bank debt outstanding at March
31, 1996 was $1.9 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 $26 thousand in tax expense
for the first quarter of 1997. 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 $1.0 million in its condensed consolidated
balance sheet as of March 31, 1997, which is primarily made up of two items,
net operating loss carryforwards and future deductible expenses.
For the first quarter ended March 31, 1997, the Company had net income of
$3 thousand or $0.00 per share compared to a net income of $37 thousand or
$0.01 per share for the first quarter ended March 31, 1996.
7
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Liquidity and Capital Resources
At March 31, 1997, the Company had working capital of $7.4 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 March 31, 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 depends
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 $1.9 million since
March 31, 1996.
As of March 31, 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 Menley & James 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 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 March 31, 1997.
8
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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: May 14, 1997 /s/ William W. Yeager
------------------------
William W. Yeager
Chief Financial Officer
(and duly authorized
officer of the registrant)
9
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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.
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the
Condensed Consolidated Balance Sheet at March 31, 1997 (unaudited) and
the Condensed Consolidated Statement of Operations for the Three Months
Ended March 31, 1997 (unaudited) and is qualified in its entirety by
reference to such financial statments.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,196
<SECURITIES> 0
<RECEIVABLES> 2,668
<ALLOWANCES> 488
<INVENTORY> 3,849
<CURRENT-ASSETS> 9,294
<PP&E> 1,378
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,106
<CURRENT-LIABILITIES> 1,936
<BONDS> 0
0
0
<COMMON> 61
<OTHER-SE> 21,109
<TOTAL-LIABILITY-AND-EQUITY> 23,106
<SALES> 3,571
<TOTAL-REVENUES> 3,571
<CGS> 1,598
<TOTAL-COSTS> 1,598
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 29
<INCOME-TAX> 26
<INCOME-CONTINUING> 3
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
