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, 1998
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 12, 1998, was 6,163,518.
<PAGE>
MENLEY & JAMES, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited). Page No.
Condensed Consolidated Balance Sheets - June 30, 1997,
December 31, 1997 and June 30, 1998 .............................. 3
Condensed Consolidated Statements of Operations - Three and Six
Months Ended June 30, 1997 and 1998 .............................. 4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1997 and 1998 ..................................... 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 ......................................... 7
Item 2. Changes in Securities ..................................... 7
Item 3. Defaults Upon Senior Securities ........................... 7
Item 4. Submission of Matters to a Vote of Security Holders ....... 7
Item 5. Other Information ......................................... 8
Item 6. Exhibits and Reports on Form 8-K .......................... 8
Signature .......................................................... 8
2
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MENLEY & JAMES, INC.
Condensed Consolidated Balance Sheets
(In thousands)
June 30, December 31, June 30,
1997 1997 1998
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents .......... $ 1,941 $ 2,879 $ 3,625
Accounts receivable, net of
allowances of $461 and $524
in 1997 and $452 in 1998 ......... 2,164 2,474 2,217
Inventory .......................... 3,520 2,844 3,170
Other current assets ............... 1,716 1,698 1,277
------ ------ ------
Total current assets ............... 9,341 9,895 10,289
Other long-term assets .............. 1,387 1,435 1,417
Product lines, trade names and
packaging designs, net ............ 11,640 11,123 10,601
Long-term deferred tax asset ........ 407 -- 503
------ ------ ------
Total assets ...................... $22,775 $22,453 $22,810
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................... $ 1,182 $ 840 $ 1,039
Accrued expenses ................... 460 647 630
Current portion of capital
lease obligation ................. 43 36 29
------ ------ ------
Total current liabilities ...... 1,685 1,523 1,698
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
and 6,163,518 shares in 1997 and
6,163,518 in 1998 .................. 61 62 62
Additional paid-in capital ........... 45,454 45,463 45,463
Accumulated deficit .................. (24,425) (24,595) (24,413)
------ ------ ------
Total stockholders' equity ............ 21,090 20,930 21,112
Total liabilities and ------ ------ ------
stockholders' equity .............. $22,775 $22,453 $22,810
====== ====== ======
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,
1997 1998 1997 1998
Net sales ....................... $ 3,280 $ 3,649 $ 6,851 $ 6,922
Cost of goods sold .............. 1,738 1,688 3,336 3,218
------ ------ ------ ------
Gross profit .................... 1,542 1,961 3,515 3,704
Selling, general and
administrative expenses ....... 1,180 1,551 2,769 3,520
Depreciation and amortization ... 342 336 692 667
------ ------ ------ ------
Income (loss) from operations ... 20 74 54 (483)
Interest income ................. 28 41 23 80
------ ------ ------ ------
Income (loss) before income taxes 48 115 77 (403)
Provision (benefit) for
income taxes .................. 128 296 154 (585)
------ ------ ------ ------
Net income (loss) ............... $ (80) $ (181) $ (77) $ 182
====== ====== ====== ======
Basic income (loss) per share ... $ (0.01) $ (0.03) $ (0.01) $ 0.03
====== ====== ====== ======
Diluted income (loss) per share .. $ (0.01) $ (0.03) $ (0.01) $ 0.03
====== ====== ====== ======
Weighted average number of common
shares outstanding - basic ...... 6,148 6,163 6,148 6,163
===== ===== ===== =====
Weighted average number of common
shares outstanding - diluted .... 6,185 6,197 6,172 6,190
===== ===== ===== =====
See accompanying notes.
4
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MENLEY & JAMES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 30,
1997 1998
Cash flows from operating activities:
Net income (loss) .......................... $ (77) $ 182
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization .............. 692 667
Allowance for accounts receivable .......... (63) (6)
Amortization of deferred financing costs ... 28 --
Deferred income taxes (benefit) ............ 154 (585)
Changes in operating assets and liabilities:
Accounts receivable ....................... 620 263
Inventory ................................. (118) (326)
Prepaid expenses .......................... (634) 503
Accounts payable .......................... 73 199
Accrued expenses .......................... (81) (17)
------ ------
Net cash provided by operating activities ... 594 880
Cash flows used in investing activities:
Other, principally property purchases, net (191) (127)
Cash flows used in financing activities:
Repayment of borrowings ................... (667) (7)
------ ------
Net increase (decrease) in cash ............. (264) 746
Cash and cash equivalents, beginning of period 2,205 2,879
------ ------
Cash and cash equivalents, end of period .... $ 1,941 $ 3,625
====== ======
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, 1997. Operating results for the six-month period ended
June 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
NOTE A - INVENTORIES
Inventories consist of the following (in thousands):
June 30, December 31, June 30,
1997 1997 1998
Raw materials ......................... $ 1,288 $ 1,095 $ 1,193
Work in process ....................... 580 280 264
Finished goods ........................ 1,652 1,469 1,713
------ ------ ------
$ 3,520 $ 2,844 $ 3,170
====== ====== ======
NOTE B - INCOME TAXES
The effective tax rate used is based on the estimated effective tax rate for
the full year and 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, 1998 were $3.6 million, an
increase of $369 thousand, compared to $3.3 million for the comparable
period of 1997. The net sales increase for the second quarter reflects an
increase of $328 thousand in net sales of AsthmaHaler. Total year-to-date
sales of the Company were $6.9 million, which is relatively flat for the
comparable year-to-date period. However, the net sales for the first six
months reflect the continued erosion of a specific group of the Company's
brands due to trade destocking and competitive pressure. Sales from this
group of brands have declined from $3.5 million in the first six months of
1995 to $2.3 million in the first six months of 1998. However, total sales
of the Company were relatively flat for the same periods, $7.0 million and
$6.9 million, respectively. Increased sales from products the Company
markets under agreements with three pharmaceutical firms and sales from the
Company's other brands have largely offset this sales decline since 1995.
6
<PAGE>
Cost of goods sold for the second quarter ended June 30, 1998 and 1997 was
$1.7 million in each period, representing 46% and 53% of net sales in their
respective periods. Year-to-date cost of goods sold was $3.2 million, or
46% of net sales in 1998, compared to $3.3 million, or 49% of net sales for
1997. The decrease in the cost of goods sold, as a percentage of sales, is
a result of the change in mix-of-products sold and lower product costs.
Selling, general and administrative expenses for the three- and six-month
periods of 1998 were $1.6 and $3.5 million, an increase of $371 and $751
thousand compared to the respective 1997 periods. The increase is primarily
due to an increase in Benzedrex and Albolene advertising costs along with 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.
The Company, at December 31, 1997, had a net operating loss carryforward for
federal income tax purposes of approximately $5.7 million which may be used
to offset future taxable income. These loss carryforwards expire in the
years 2005 through 2008. The net loss for the second quarter includes $296
thousand of tax expense. Net income for the year includes $585 thousand in
tax benefit. The effective tax rate used is based on the estimated
effective tax rate for the full year and 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 $1.3 million in its condensed consolidated balance
sheet as of June 30, 1998, which is primarily made up of two items, net
operating loss carryforwards and future deductible expenses.
Liquidity and Capital Resources
At June 30, 1998, the Company had working capital of $8.6 million. Working
capital was provided by 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, 2000,
unless extended. The Company had no bank debt outstanding at June 30, 1998.
Extended payment date terms that are consistent with standard industry
practice and 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, 1998, the Company's primary cash requirements are for its
normal working capital requirements as the Company normally incurs only a
limited amount of capital expenditures. 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
At the Company's Annual Meeting of Stockholders held May 21, 1998,
the stockholders of the Company elected six directors of the
Company, ratified the appointment of Ernst & Young LLP as the
Company's independent auditors for the year ending December 31,
1998, and approved an amendment to the Company's 1991 Stock Option
Plan to increase the number of shares reserved for issuance.
Messrs. Carr, Kearl, McMillan, Simpson, Thomas and White were
elected to serve as directors at the meeting. The voting results
were as follows: 5,751,912 shares were
7
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in favor of Mr. Carr and 62,975 shares withheld; 5,750,422 shares
were in favor of Mr. Kearl and 64,465 shares withheld; 5,751,912
shares were in favor of Mr. McMillan, and 62,975 shares withheld;
5,750,722 shares were in favor of Mr. Simpson and 64,165 shares
withheld; 5,749,522 shares were in favor of Mr. Thomas and 65,365
shares withheld; and 5,750,422 shares were in favor of Mr. White
and 64,465 shares withheld. The vote ratifying the appointment of
Ernst & Young, LLP as independent auditors was 5,767,362 shares for,
37,025 shares against and 10,500 shares withheld. The vote to
amend the 1991 Stock Option Plan was 5,471,684 shares for, 274,903
shares against and 68,300 shares withheld.
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, 1998.
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, 1998 /s/ William W. Yeager
Chief Financial Officer
(and duly authorized
officer of the registrant)
8
<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.
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the Condensed
Consolidated Balance Sheet at June 30, 1998 (unaudited) and the Condensed
Consolidated Statement of Operations for the Six Months Ended June 30,
1998 (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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,625
<SECURITIES> 0
<RECEIVABLES> 2,669
<ALLOWANCES> 452
<INVENTORY> 3,170
<CURRENT-ASSETS> 10,289
<PP&E> 1,417
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,810
<CURRENT-LIABILITIES> 1,698
<BONDS> 0
0
0
<COMMON> 62
<OTHER-SE> 24,413
<TOTAL-LIABILITY-AND-EQUITY> 22,810
<SALES> 6,922
<TOTAL-REVENUES> 6,922
<CGS> 3,218
<TOTAL-COSTS> 3,218
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (80)
<INCOME-PRETAX> (403)
<INCOME-TAX> (585)
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<NET-INCOME> 182
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
