<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1995 Commission File No. 1-4436
THE STEPHAN CO.
(Exact Name of Registrant as Specified in its Charter)
Florida 59-0676812
(State or Other Jurisdiction of (I.R.S Employer
Incorporation or Organization) Identification No.)
1850 West McNab Road, Fort Lauderdale, Florida 33309
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (305) 971-0600
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
the filing requirements for at least the past 90 days.
YES X NO
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 and 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
YES NO
---- ----
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
Common Shares outstanding as of September 30, 1995
4,122,484
<PAGE> 2
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 30, 1995
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Operations
Nine Months ended September 30, 1995 and 1994 4
Consolidated Statements of Operations
Quarter ended September 30, 1995 and 1994 5
Consolidated Statements of Cash Flows
Nine Months ended September 30, 1995 and 1994 6
Notes to Consolidated Financial Statements 7-8
ITEM 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations. 9-10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 11
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
2
<PAGE> 3
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1995 1994
------------- --------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,140,042 $ 6,292,537
Marketable securities 103,575 417,237
Accounts receivable, net 5,306,314 4,310,853
Inventories 6,820,024 5,651,346
Note receivable 500,000 500,000
Prepaid expenses and other 331,832 169,743
----------- ------------
TOTAL CURRENT ASSETS 20,201,787 17,341,716
PROPERTY AND EQUIPMENT, net 1,905,288 1,878,040
OTHER ASSETS 106,185 106,119
INTANGIBLE ASSETS 9,010,026 9,748,425
----------- ------------
TOTAL ASSETS $ 31,223,286 $ 29,074,300
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of
long-term debt $ 152,010 $ 143,828
Accounts payable and
accrued expenses 1,389,665 2,512,850
Note payable to bank 400,000 400,000
Income taxes payable 443,830 468,334
------------ ------------
TOTAL CURRENT LIABILITIES 2,385,505 3,525,012
DEFERRED INCOME TAXES 139,448 85,000
LONG-TERM DEBT 686,278 810,987
------------ ------------
TOTAL LIABILITIES 3,211,231 4,420,999
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 42,186 41,832
Additional paid in capital 13,510,720 13,715,319
Retained earnings 15,343,149 11,780,150
------------ ------------
28,896,055 25,537,301
TREASURY STOCK (80,000 Shares) (884,000) (884,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 28,012,055 24,653,301
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 31,223,286 $ 29,074,300
============ ============
See Notes to Consolidated Financial Statements
(UNAUDITED)
3
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THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30,
------------------------------
1995 1994
------------ ------------
SALES $ 21,321,963 $ 17,515,455
Less: Cost of Goods Sold 9,276,664 7,222,333
------------ ------------
GROSS PROFIT 12,045,299 10,293,122
------------ ------------
OTHER EXPENSES
Selling, general and
administrative expenses 6,599,070 5,770,699
Interest 69,244 69,857
------------ ------------
TOTAL OTHER EXPENSES 6,668,314 5,840,556
------------ ------------
INCOME FROM OPERATIONS 5,376,985 4,452,566
OTHER INCOME
Interest 249,549 130,279
Rental and other 600 22,367
------------ ------------
INCOME BEFORE INCOME TAXES 5,627,134 4,605,212
STATE INCOME TAXES 308,914 267,079
FEDERAL INCOME TAXES 1,672,771 1,301,122
------------ ------------
NET INCOME $ 3,645,449 $ 3,037,011
============ ============
NET INCOME PER COMMON SHARE $ .88 $ .76
============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,128,704 4,020,602
============ ============
See Notes to Consolidated Financial Statements
(UNAUDITED)
4
<PAGE> 5
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended September 30,
---------------------------
1995 1994
----------- ----------
SALES $ 7,160,477 $ 6,523,322
Less: Cost of Goods Sold 2,723,802 2,157,248
----------- ----------
GROSS PROFIT 4,436,675 4,366,074
----------- ----------
OTHER EXPENSES
Selling, general and
administrative expenses 2,310,062 2,684,126
Interest 23,888 18,421
----------- ----------
TOTAL OTHER EXPENSES 2,333,950 2,702,547
----------- ----------
INCOME FROM OPERATIONS 2,102,725 1,663,527
OTHER INCOME
Interest 92,512 66,691
Rental and other 524 18,963
------------ ------------
INCOME BEFORE INCOME TAXES 2,195,761 1,749,181
STATE INCOME TAXES 129,442 107,169
FEDERAL INCOME TAXES 680,126 392,594
----------- ----------
NET INCOME $ 1,386,193 $ 1,249,418
=========== ==========
NET INCOME PER COMMON SHARE $ .34 $ .30
=========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,136,980 4,218,612
=========== ==========
See Notes to Consolidated Financial Statements
(UNAUDITED)
5
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THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
---------------------------
1995 1994
----------- -----------
CASH PROVIDED/(USED) BY OPERATIONS:
Net income $ 3,645,449 $ 3,037,011
Income charges (credits) not
affecting cash:
Depreciation 117,110 57,759
Amortization 359,373 258,347
Changes in certain working
capital components:
Change in accounts receivable (995,461) (416,534)
Change in inventory (1,168,678) (2,016,746)
Change in prepaid expenses (162,089) (66,359)
Change in accounts payable
and accrued expenses (1,123,185) 393,357
Change in income taxes payable 29,944 (215)
----------- -----------
CASH PROVIDED/(USED)BY OPERATIONS 702,463 1,246,620
----------- -----------
CASH PROVIDED/(USED)BY INVESTING
ACTIVITIES:
Maturities of marketable securities 313,662 148,111
Purchase of property and equipment (144,358) (182,013)
Changes in other assets (66) 429
Intangible assets acquired - (3,606,018)
Other investments 137,700 (800,000)
----------- -----------
CASH PROVIDED/(USED) BY INVESTING
ACTIVITIES 306,938 (4,439,491)
----------- -----------
CASH PROVIDED/(USED) BY FINANCING
ACTIVITIES:
Change in long-term debt, net of
current portion (116,527) (124,172)
Increase from issuance of stock - 5,972,055
Proceeds from exercise of options 37,081 31,609
Dividends paid (82,450) -
----------- -----------
CASH PROVIDED/(USED) BY FINANCING
ACTIVITIES (161,896) 5,879,492
----------- -----------
NET CHANGE IN CASH 847,505 2,686,621
CASH, BEGINNING OF PERIOD 6,292,537 4,004,471
----------- -----------
CASH, END OF PERIOD $ 7,140,042 $ 6,691,092
=========== ===========
See Notes to Consolidated Financial Statements
(UNAUDITED)
6
<PAGE> 7
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED SEPTEMBER 30, 1995 AND 1994
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: In the opinion of management, all
adjustments necessary for a fair presentation of financial position and
results of operations are reflected in the interim financial statements.
PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements include the accounts of The Stephan Co., and its wholly-owned
subsidiaries, Foxy Products, Inc., Old 97 Company, Williamsport Barber and
Beauty Supply Corp., Stephan & Co. (formerly Heads or Nails, Inc.) and
Scientific Research Products Inc., of Delaware. All significant
intercompany balances and transactions have been eliminated in
consolidation.
BUSINESS ACTIVITY: The Stephan Co. is engaged in the
manufacture, sale, and distribution of personal care grooming products
throughout the United States. The Company's business activity constitutes
a single reportable segment for purposes of Statement of Financial
Accounting Standards No 14.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents includes
cash, certificates of deposit, United States Treasury Bills, and municipal
bonds having maturities of one month or less. Included in cash and cash
equivalents is a $400,000 certificate of deposit pledged as collateral
against a $400,000 note payable to bank.
MARKETABLE SECURITIES: Marketable securities are carried at
cost, which approximates market, and represents investments in short-term
municipal bonds.
INVENTORIES: Inventories of finished goods and work in
progress are stated at the lower of standard cost (approximate actual cost
on the first-in, first-out basis) or market. Inventories of raw materials,
containers and packaging materials are stated at the lower of cost (first-
in, first-out basis) or market.
Inventories were as follows:
September 30, December 31,
1995 1994
----------- ------------
Raw Materials $ 776,217 $ 539,842
Packaging and components 2,605,305 2,017,061
Work in progress 486,475 446,311
Finished goods 2,952,027 2,648,132
----------- ------------
Total Inventories $ 6,820,024 $ 5,651,346
=========== ============
7
<PAGE> 8
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED SEPTEMBER 30, 1995 AND 1994
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
PROPERTY AND EQUIPMENT: Property and equipment are recorded
at cost. Depreciation is provided on a straight line basis over the
estimated useful lives of the assets. Expenditures for maintenance and
repairs are charged to expense as incurred and major renewal replacements
are capitalized.
INTANGIBLE ASSETS: Amortization of intangible assets is
determined using the straight-line method based on the following estimated
useful lives:
Goodwill 20-40 years
Covenant not to compete 7 years
RESEARCH AND DEVELOPMENT COSTS: Costs for research and
development activities are expensed as incurred, and were not significant
in any of the periods currently reported.
RECENT PRONOUNCEMENTS: The Financial Accounting Standards
Board (FASB) has issued the following statements, which are to be applied
prospectively: FASB #118 - Accounting by Creditors for Impairment of a
Loan - income recognition and disclosures, #119 - Disclosure about
derivative financial instruments and fair value of financial instruments,
#120 - Accounting and reporting by mutual life insurance enterprises and by
insurance enterprises for certain long-duration participating contracts and
#121 - Accounting for the impairment of long-lived assets and for long-
lived assets to be disposed of. Once effective, none of these
pronouncements are expected to have a material impact on the financial
statements of the Company.
INCOME TAXES: Effective January 1, 1993, the Company has
changed its method of accounting for income taxes to comply with the
provisions of Statement of Financial Accounting No. 109, Accounting for
Income Taxes. This standard requires, among other things, a liability
approach to calculating deferred income taxes. There was no material
effect on quarterly results from such adoption.
NET INCOME PER COMMON SHARE: Net income per common share is
computed by dividing net income by the sum of the weighted average number
of shares of common stock and common stock assumed to be outstanding upon
exercise of all stock options, utilizing the treasury stock method. The
weighted average number of shares outstanding was 4,128,704 for the nine
months ended September 30, 1995 and 4,020,602 for the nine months ended
September 30, 1994. Fully diluted earnings per share is not presented as
it is not materially different.
At the annual meeting held in July 1994, the amount of common shares
authorized for issuance was increased from 5,000,000 shares to 25,000,000
shares. At September 30, 1995, 4,218,589 shares of common stock were
issued and 4,122,484 were outstanding. At December 31, 1994, 4,183,248
shares were issued and 4,103,248 were outstanding.
8
<PAGE> 9
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 30, 1995 AND 1994
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
For the quarter ended September 30, 1995, the Company continued to show
record sales and profits. Sales for the nine months ended September 30,
1995 were over $ 21,300,000, which represents an approximate 22% increase
over the comparable nine month period for 1994. Net income increased 20%
from $ 3,037,000 for the nine months ended September 30,1994 to $ 3,645,000
for the current nine month period. Net income per share for the period
ended September 30, 1995 was $ .88, compared to $ .76 for the previous
year.
For the quarter ended September 30, 1995, sales were over $ 7,150,000, up
10% from the $ 6,500,000 posted in the third quarter of 1994. Net income
for the third quarter was 11% higher, at $ 1,386,000, than the comparable
period in 1994.
Sales from the Scientific Research Products division, as well as strong
private label manufacturing demand, helped increase volume in the third
quarter of 1995. Despite pressures placed on the Registrant's gross margin
from increasing product costs and trade show promotional pricing the
Company was able to offset the foregoing by reducing selling, general and
administrative expenses, enabling the Registrant to maintain favorable
profit levels. Management believes that it can control production and
administrative costs and sustain growth at a level consistent with prior
periods.
In August, 1995, the Company signed an exclusive 2-year licensing agreement
with the City of Hope, a non-profit charitable organization. The Company
will create and market a line of fragrance products to be sold in elite
retail markets, with a portion of the proceeds being given to the City of
Hope. The Company anticipates product introduction to commence in the
early part of 1996.
9
<PAGE> 10
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 30, 1995 AND 1994
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (con't).
LIQUIDITY & CAPITAL RESOURCES
As of September 30, 1995, the Company had approximately $ 7,150,000 in cash
and cash equivalents, which represents an increase of approximately
$850,000 since the beginning of the year. Total current assets at
September 30, 1995 was over $ 20,000,000, approximately $ 3,000,000 higher
than it was at the end of 1994. Working capital was over $ 17,750,000, an
increase of close to $ 4,000,000 since December 31, 1994.
Due in large part to continued high levels of production for Trevor Sorbie
of America, and third quarter barber and beauty shows, accounts receivable
and inventory both increased in the third quarter.
In accordance with the terms of the $ 500,000 Secured Subordinated
Convertible Debenture, due December 31, 1995, to the Company from Trevor
Sorbie of America, Inc., the Company has indicated that it will not
exercise the conversion option. In an effort to properly evaluate the
conversion privilege of the Debenture, the Company and Sorbie informally
agreed to extend the Conversion Date by approximately 60 days, and in
consideration thereof, have mutually agreed to extend the maturity date of
the Debenture by an equal period of time. The Company's decision not to
exercise the option has no effect on the manufacturing and warehouse
agreement, which expires in 2004.
At the Annual Stockholders Meeting held in June, 1995, the Company declared
its first quarterly dividend of 2 cents per share. As such, $ 82,450 was
paid to our stockholders in August, 1995. On October 26, 1995, the Company
announced a record date of November 6, 1995 for the next quarterly 2 cent
dividend, payable November 20, 1995.
10
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THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 30, 1995 AND 1994
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May, 1994, the Registrant filed suit against the former stockholder of
Penny's Heads or Nails, Inc. The suit alleged certain breaches of
representations and warranties in connection with the purchase of the
company's common stock in August, 1993, for $ 357,116 cash and 23,007
restricted shares of the Registrant's common stock. In August, 1995, the
litigation was terminated by a settlement between the parties, resulting in
a return of a substantial amount of the shares issued in the acquisition.
As a result of the settlement, the Registrant has reduced Goodwill and
Additional Paid in Capital by approximately $ 300,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27- Financial Data Schedule
(b) On October 12, 1995, and as amended on November 1 and 3,1995, the
Registrant filed a Form 8-K in connection with the resignation of the
Registrant's previous independent public accountants.
11
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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.
THE STEPHAN CO.
Frank F. Ferola
President and Chairman of the Board
November 11, 1995
David A. Spiegel
Principal Financial Officer
November 11, 1995
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10Q FOR SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> SEP-30-1995 DEC-31-1994
<CASH> 7,140,042 6,292,537
<SECURITIES> 103,575 417,237
<RECEIVABLES> 5,367,548 4,352,672
<ALLOWANCES> 61,234 41,819
<INVENTORY> 6,820,024 5,651,346
<CURRENT-ASSETS> 20,201,787 17,341,716
<PP&E> 2,693,970 2,547,838
<DEPRECIATION> 788,682 669,798
<TOTAL-ASSETS> 31,223,286 29,074,300
<CURRENT-LIABILITIES> 2,385,505 3,525,012
<BONDS> 1,238,288 1,354,815
<COMMON> 42,186 41,832
0 0
0 0
<OTHER-SE> 27,969,869 24,611,469
<TOTAL-LIABILITY-AND-EQUITY> 31,223,286 29,074,300
<SALES> 21,321,963 24,340,903
<TOTAL-REVENUES> 21,572,112 24,684,102
<CGS> 9,276,664 10,707,863
<TOTAL-COSTS> 9,276,664 10,707,863
<OTHER-EXPENSES> 6,495,672 7,631,458
<LOSS-PROVISION> 103,398 47,011
<INTEREST-EXPENSE> 69,244 98,189
<INCOME-PRETAX> 5,627,134 6,199,581
<INCOME-TAX> 1,981,685 2,123,245
<INCOME-CONTINUING> 3,645,449 4,076,336
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,645,449 4,076,336
<EPS-PRIMARY> .88 1.00
<EPS-DILUTED> .88 1.00
</TABLE>
