SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1997 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: (954) 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 June 30, 1997
4,384,266
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 1997 AND 1996
The undersigned hereby amends Item 2 of Part I of its Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997 to read as
follows:
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Sales for the quarter ended June 30, 1997 were up almost 10% to just over
$7,100,000 when compared to the approximate $6,470,000 achieved in the
second quarter of 1996. The increase in sales was due mostly to an
increase in core business and the acquisition of brands from New Image
Laboratories, Inc., as explained in the Liquidity and Capital Resources
section, did not have a material effect on sales. Net income for the
second quarter of 1997 also increased 10%, to $1,460,000 compared to the
$1,332,000 for the quarter ended June 30, 1996. Earnings per share for
the second quarter was $.35 compared to $.32 for the quarter ended June
30, 1996. For the six months ended June 30, 1997, net income was up about
5% when compared with the same six month period in 1996, increasing
approximately $135,000, to $2,687,000 while earnings per share rose 3
cents a share to $.65. The Company continues to show favorable gross
profits and net earnings through the first half of 1997 and was
encouraged by the increase in sales of over $600,000 for the second
quarter of 1997. The Company's gross profit percentage increased over 2%
for the quarter ended June 30, 1997. The gross profit margin continues to
increase due to the change in the Company's product mix attributable to
the Colgate-Palmolive brands and Trevor Sorbie product line and
continuing competitive pricing received on purchases of raw materials and
components.
Selling, general and administrative expenses have increased approximately
17% for the six months ended June 30, 1997 and approximately 13% for the
second quarter of 1997. This increase is due to higher expenses in
connection with the Trevor Sorbie line acquired in late June 1996. The
decline from 17% overall to 13% in the second quarter is indicative of
the continuing cost savings and containment policies instituted by the
Company as it relates to the Trevor Sorbie line. While the Company's
management believes that it can effectively control selling, general and
administrative expenses, such expenses are expected generally to continue
to be higher than in quarters prior to the acquisition of the Trevor
Sorbie product line because professional hair care products generally
require higher advertising, promotional and employment-related expenses
than other product lines of the Company. However, higher selling,
general and administrative expenses are substantially offset because, as
indicated above, the Company's professional hair care products yield
greater gross profit margins. The net result of the foregoing is
expected to have a positive effect on operating results.
Interest expense increased over $200,000 for the current six month period
and over $100,000 for the current quarter due to interest incurred on the
Colgate-Palmolive brand acquisition and the Trevor Sorbie acquisition
loans.
Other income of $62,500 is a result of the royalty received in connection
with the Frances Denney/Color Me Beautiful licensing agreement entered
into in January, 1996.
Tax advantages of merchandise donated to a charitable organization in the
first and second quarters of 1997 had the effect of reducing the
provision for income taxes for the quarter and six months ended June 30,
1997.
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 1997 AND 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (con't).
LIQUIDITY & CAPITAL RESOURCES
As of June 30, 1997, the Company had over $7,600,000 in cash and cash
equivalents, which represented a decrease of approximately $650,000 since
December 31, 1996. Total current assets at June 30, 1997 was $24,690,000,
which was an increase of approximately $4,300,000. Working capital was
over $13,285,000, a decrease of almost $900,000 since December 31, 1996,
primarily as a result of debt retirement and acquisition activity. As
explained below, the acquisition of additional product lines had a
significant impact on total assets, liabilities and working capital.
On June 26, 1997, the Company closed on the acquisition of two product
lines from New Image Laboratories, Inc. As a result, the Company
acquired the professional hair care line of products marketed under the
brand name "Image" and a retail hair care line know as "Modern" and
marketed under the trade name "Stiff Stuff". In addition to being
popular hair care lines, these brands have international distribution
which management believes will enhance the distribution of other Stephan
Co. products. The brands were acquired for (i) 250,000 shares of
restricted Stephan Co. stock, with provision for half the shares to be
held in escrow pending, among other things, final adjustment of the
purchase price in accordance with the acquisition agreement and (ii)
100,000 restricted shares to be issued over the next two years contingent
upon on the achievement of certain earnings levels as set forth in the
acquisition agreement. The acquisition was accounted for as a purchase,
with a net value of approximately $5,000,000 based upon the quoted market
price of Stephan Co. stock at the time of issuance and the value of
assets acquired. The Company acquired certain accounts receivable,
inventory, fixed assets and trademarks as well as assuming certain
outstanding trade and other liabilities of approximately $6,665,000. The
purchase price is subject to adjustment in accordance with the terms of
the agreement. Such adjustments, if any, will be made utilizing the
shares held in escrow. Goodwill of approximately $5,000,000 was
initially recorded, to be amortized over a 25 year period, however due to
various adjustment provisions in the agreement, the final amount of
goodwill will change.
In July, 1997, the Company increased its bank line of credit from
$2,000,000 to $5,000,000, leaving an unused line of credit of $4,000,000
available to retire the trade payables assumed in the acquisition. The
Company anticipates that this increased line of credit will provide the
necessary funds for the above, as well as providing additional borrowing
capacity for future acquisitions, if necessary. Additionally, and in
accordance with the terms of the acquisition agreement, the Company
secured a letter of credit for approximately $2,900,000 to guarantee the
payment of trade liabilities assumed.
SIGNATURES
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.
/s/ Frank F. Ferola
____________________________________
Frank F. Ferola, President, Chairman
of the Board and Principal
Executive Officer
September 22, 1997
/s/ David A. Spiegel
____________________________________
David A. Spiegel
Principal Financial Officer and
Principal Accounting Officer
September 22, 1997
