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, 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 May 8, 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 - March 31, 1997,
December 31, 1997 and March 31, 1998 ............................ 3
Condensed Consolidated Statements of Operations - Three Months
Ended March 31, 1997 and 1998 ................................... 4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 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 ........................................ 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 ......................................................... 8
2
<PAGE>
MENLEY & JAMES, INC.
Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31, March 31,
1997 1997 1998
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ........... $ 2,196 $ 2,879 $ 3,628
Accounts receivable, net of
allowances of $488 and $524
in 1997 and $452 in 1998 .......... 2,180 2,474 1,615
Inventory ........................... 3,849 2,844 3,063
Other current assets ................ 1,069 1,698 1,192
------ ------ ------
Total current assets ................ 9,294 9,895 9,498
Other long-term assets ............... 1,378 1,435 1,398
Product lines, trade names and
packaging designs, net ............. 11,899 11,123 10,861
Long-term deferred tax asset ......... 535 -- 799
------ ------ ------
Total assets ....................... $23,106 $22,453 $22,556
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................... $ 1,498 $ 840 $ 758
Accrued expenses .................... 392 647 472
Current portion of capital
lease obligation .................. 46 36 33
------ ------ ------
Total current liabilities ........... 1,936 1,523 1,263
Long-term debt ....................... -- -- --
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 ................. (24,345) (24,595) (24,232)
------ ------ ------
Total stockholders' equity ............ 21,170 20,930 21,293
------ ------ ------
Total liabilities and
stockholders' equity .............. $23,106 $22,453 $22,556
====== ====== ======
See accompanying notes.
3
<PAGE>
MENLEY & JAMES, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
1997 1998
Net sales ................................... $ 3,571 $ 3,273
Cost of goods sold .......................... 1,598 1,530
----- -----
Gross profit ................................ 1,973 1,743
Selling, general and administrative
expenses .................................. 1,589 1,969
Depreciation and amortization ............... 350 331
----- -----
Income (loss) from operations ............... 34 (557)
Interest (expense) income ................... (5) 39
----- -----
Income (loss) before income taxes ........... 29 (518)
Provision (benefit) for income taxes ........ 26 (881)
----- -----
Net income .................................. $ 3 $ 363
===== =====
Basic income per share ...................... $ 0.00 $ 0.06
===== =====
Diluted income per share .................... $ 0.00 $ 0.06
===== =====
Weighted average number of common
shares outstanding - basic ................ 6,148 6,163
===== =====
Weighted average number of common
shares outstanding - diluted .............. 6,158 6,183
===== =====
See accompanying notes.
4
<PAGE>
MENLEY & JAMES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1997 1998
Cash flows from operating activities:
Net income ................................... $ 3 $ 363
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............ 350 331
Allowance for accounts receivable ........ (36) (12)
Amortization of deferred financing costs . 28 --
Deferred income taxes (benefit) .......... 26 (881)
Changes in operating assets and liabilities:
Accounts receivable .................... 577 871
Inventory .............................. (447) (219)
Prepaid expenses ....................... 13 588
Accounts payable ....................... 389 (82)
Accrued expenses ....................... (149) (175)
----- -----
Net cash provided by operating activities ...... 754 784
Cash flows used in investing activities:
Other, principally property purchases, net ... (99) (32)
Cash flows used in financing activities:
Repayment of borrowings ...................... (664) (3)
----- -----
Net increase (decrease) in cash ................ (9) 749
Cash and cash equivalents, beginning of period . 2,205 2,879
----- -----
Cash and cash equivalents, end of period ....... $2,196 $3,628
===== =====
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,
1997. Operating results for the three-month period ended March 31, 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):
March 31, December 31, March 31,
1997 1997 1998
Raw materials ...................... $ 1,273 $ 1,095 $ 1,039
Work in process .................... 690 280 325
Finished goods ..................... 1,886 1,469 1,699
----- ----- -----
$ 3,849 $ 2,844 $ 3,063
===== ===== =====
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 three months ended March 31, 1998 were $3.3 million, a
decrease of $298 thousand, compared to $3.6 million for the comparable
period of 1997. The net sales decline for the first quarter reflects 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 $1.8 million in the first quarter of 1995, to $1.0 million in
the first quarter of 1998. However, total sales of the Company were
relatively flat for the same periods, $3.4 million and $3.3 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 three months ending March 31, 1998 was $1.5
million compared to $1.6 million in the respective 1997 period, representing
47% and 45% of net sales in their respective periods. The increase in the
cost of goods sold, as a percentage of sales for the first quarter, is a
result of the change in mix-of-products sold.
Selling, general and administrative expenses for the three-month period of
1998 was $2.0 million, an increase of $380 thousand compared to the
respective 1997 period. 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.
Interest income was $39 thousand for the first quarter of 1998, compared to
interest expense of $5 thousand, including finance cost amortization, for
the prior year period. There was no bank debt outstanding at March 31, 1998.
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. Net income includes an $881 thousand tax
benefit for the first quarter of 1998. 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 $1.6 million in its condensed
consolidated balance sheet as of March 31, 1998, which is primarily made up
of two items, net operating loss carryforwards and future deductible expenses.
Liquidity and Capital Resources
At March 31, 1998, the Company had working capital of $8.2 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, 1998,
unless extended. The Company has no bank debt outstanding at March 31, 1998.
The Company expects to extend the revolving credit facility, however, no
assurance can be given that the Company will be able to extend the facility or
replace it with substitute credit arrangements. 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 March 31, 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. The Company's strategic focus is to
grow Menley & James by building a brand-name health care products business.
The Company intends to accomplish this by developing a lead product and/or
acquiring new companies or brands, 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.
7
<PAGE>
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, 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: May 14, 1998 /s/ William W. Yeager
---------------------
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 March 31, 1998 (unaudited) and the Condensed
Consolidated Statement of Operations for the Three Months Ended March 31, 1998
(unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,628
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<RECEIVABLES> 2,067
<ALLOWANCES> 452
<INVENTORY> 3,063
<CURRENT-ASSETS> 9,498
<PP&E> 1,398
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,556
<CURRENT-LIABILITIES> 1,263
<BONDS> 0
0
0
<COMMON> 62
<OTHER-SE> 21,231
<TOTAL-LIABILITY-AND-EQUITY> 22,556
<SALES> 3,273
<TOTAL-REVENUES> 3,273
<CGS> 1,530
<TOTAL-COSTS> 1,530
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (39)
<INCOME-PRETAX> (518)
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<EPS-DILUTED> (.06)
</TABLE>
