UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  FORM 10-K
            [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                     THE SECURITIES EXCHANGE ACT OF 1934
                 For the fiscal year ended December 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 offices)
                Registrant's telephone number: (215) 441-6500


         Securities registered pursuant to Section 12(b) of the Act:
                                     None

         Securities registered pursuant to Section 12(g) of the Act:
                    Common Stock, par value $.01 per share

     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
                                                   ---    ---
     Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]
     The aggregate market value of the voting stock held by nonaffiliates of
the registrant, as of March 17, 1998, was $3,569,162.
     The number of shares of the registrant's common stock, par value $.01 per
share, outstanding as of March 17, 1998, was 6,163,518.

Documents Incorporated by Reference:

                Document                         Part(s) Into Which Incorporated

(1) Proxy Statement to be used in connection with           Part III
the Annual Meeting of Stockholders to be held
May 21, 1998 (the "Proxy Statement"). With the
exception of the pages of the Proxy Statement
specifically incorporated by reference herein, the
Proxy Statement is not deemed to be filed as a
part of this Form 10-K.

<PAGE>

               Important Factors Relating to Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements so long as those statements are identified as
forward-looking and are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those projected in such statements.  In connection with
certain forward-looking statements contained in this Annual Report on Form 10-
K and those that may be made in the future by or on behalf of the Company,
the Company notes that there are various factors that could cause actual
results to differ materially from those set forth in any such forward-looking
statements.  Among the most significant of these factors are: competition from
major brand-name product companies; increased destocking pressure and
consolidation of major customers; difficulty in identifying and supporting
future acquisitions of companies and/or new brands; material interruption of
supply, or delay or cessation of production by the Company's manufacturers; new
or material revisions to the Food and Drug Administrations' regulations.
Readers of this Annual Report should consider these facts in evaluating the
information contained herein. Accordingly, there can be no assurance that the
forward-looking statements contained in this Annual Report will be realized or
that actual results will not be significantly higher or lower.  The inclusion
of the foreword-looking statements contained in this Annual Report should not
be regarded as a representation by the Company or any other person that the
forward-looking statements contained in this Annual Report will be achieved.
In light of the foregoing, readers of this Annual Report are cautioned not to
place undue reliance on the forward-looking statements contained herein.


                                    PART I
Item 1. Business.

     Menley & James, Inc., a Delaware corporation (the "Company"), was
incorporated in 1990.  The Company's executive offices are located at 100
Tournament Drive, Horsham, Pennsylvania 19044, and its telephone number is
(215) 441-6500.  All references to the "Company" or "Menley & James" in this
report include Menley & James, Inc. and its wholly-owned operating subsidiary,
Menley & James Laboratories, Inc., except where the context requires
otherwise.  All product designations in boldface type in this report are
trademarks of the Company, except for Garfield which is a trademark of PAWS
Incorporated, Derifil, which is a trademark of Rystan Company, Inc. and
Humibid, which is a trademark of Medeva Pharmaceuticals, Inc.

     The Company produces and markets a diversified portfolio of over-the-
counter ("OTC") pharmaceutical and toiletry products, all of which have
recognized brand names.  The products are sold in drugstores, supermarkets and
other mass merchandisers throughout the United States.


Industry Overview

     The majority of the Company's products are classified as OTC drugs.
According to industry sources, in 1997 manufacturers' sales of OTC drugs
exceeded $16 billion, with over 300 companies competing in 41 separate product
categories.

     The Company also offers products that compete in the toiletries market.
According to industry sources, in the toiletries industry, more than 65
companies had product offerings in the seven market segments in which the
Company offers products, with manufacturers' sales exceeding $8 billion in
such segments.


Company Background

     The Company commenced operations in 1990 with the acquisition of thirty-
two brands from SmithKline Beecham Corporation ("SB").  The Company's senior
executives are former executives of SB Consumer Products Division with
expertise in marketing OTC drug and toiletry products.

                                      1
<PAGE>

Company Strategy

     During 1997, the Company executed trade promotions and radio campaigns in
support of Benzedrex and Humibid Guaifenesin Plus, along with establishing
an internal telemarketing group to contact the Directors of Nursing at nursing
facilities contacting more than 3,700 homes. The Company's future 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.  The Company plans to develop at least one
       brand name product into a significant lead product.  Targeted marketing
       programs will be executed against specific brands in order to identify
       this lead product.

     * Acquiring new companies or brands.  The Company plans to devote
       significant efforts on making acquisitions.  The focus of the search is
       centered on companies and brands in the nutraceutical field, a segment
       of our industry that continues to experience significant growth due to
       the aging of the baby boomers and their interest in personal health care.

Brands
     The Company's portfolio consists of the following brands:

 Brand                                  Product Description
 -----                                  -------------------
Acnomel ..............................  Acne Medication
Acryline 2 ...........................  Dental Aid/Device (Denture)
Albolene .............................  Liquifying Skin Cleanser
Amitone ..............................  Antacid
Aqua Care ............................  Hand & Body Cream
A.R.M. ...............................  Allergy Relief Caplet
AsthmaHaler ..........................  Aerosol Bronchodilator
AsthmaNefrin .........................  Liquid Bronchodilator
Avail ................................  Calcium-Intensive Vitamin
Beau Kreml ...........................  Hair Tonic
Benzedrex ............................  Decongestant Inhaler & Nasal Spray
B.F.I. ...............................  Antiseptic Powder
Capsaicin (see note) .................  Topical Analgesic Cream
Congestac ............................  Cold Medication
Conti ................................  Soap with Olive Oil
Derifil (see note) ...................  Internal Deodorant
Duo ..................................  Eyelash Adhesive
5 Day ................................  Deodorant/Antiperspirant
Femiron ..............................  Vitamin Supplement for Women
Garfield Multivitamins ...............  Children's Chewable Multivitamins
Hold .................................  Cough Suppressant Lozenge
Humibid Guaifenesin Plus (see note) ..  Cold Medication
Lady Esther ..........................  Facial Cream & Powder
Liquiprin ............................  Children's Analgesic
Ornex ................................  Cold Medication Caplet
Plate Weld ...........................  Dental Aid/Device (Denture)
Rose Milk ............................  Skin Care Moisturizer
S.T. 37 ..............................  Liquid Antiseptic Solution
Serutan ..............................  Natural Fiber Laxative
Thermotabs ...........................  Buffered Salt Tablets
Venture ..............................  Liquid Men's Hair Dressing
Yodora ...............................  Cream Deodorant
Zonite ...............................  Vaginal Douche

     Note:  The Company has sales and marketing agreements with three
pharmaceutical companies, under which it began, during 1996, to market these
brands.

                                      2
<PAGE>

Distribution

     The Company sells its products nationally through its own six-person
sales force and 39 independent brokerage organizations to approximately 2,000
customers.  The Company's own sales force calls on approximately 30 of these
customers, including most of the major food and drug chains and drug
wholesalers, which account for over 50% of the Company's sales.  The
Company's brokers are compensated by commissions.

     The Company's major customers include drug wholesalers such as Bergen
Brunswig Corporation and McKesson Drug Company.  McKesson is the Company's
largest customer and accounted for approximately 20% of the Company's net
sales in 1997. The Company's other customers include large drug chains such as
Walgreens and Osco, large food chains such as Kroger and Safeway, and mass
merchandisers such as Kmart and Wal-Mart.

     The Company's sales force and independent brokers work directly with the
major retail customers to develop promotional programs for individual products
and to promote sales of the Company's entire product portfolio.  Depending
upon the promotional program, the Company's sales force or brokers will seek
additional shelf space or "facings" and will develop advertising, display or
price discount programs at the store level to supplement a Company-sponsored
sales program.


Manufacturing

     The Company currently has manufacturing arrangements in place with
contract manufacturers with respect to all of its products.  All of the
Company's products are manufactured to the Company's specifications under
agreements with terms generally ranging from individual purchase orders to
agreements with one-year terms which renew automatically unless canceled by
one of the parties.  Under certain agreements, the Company may purchase raw
materials in various forms to supply to the manufacturers.  The Company
believes that the raw materials used in manufacturing its products are
available in adequate quantities from multiple sources.

     The Company monitors the quality control of its manufacturers through a
system of outside third-party experts.  All production facilities are visited
at least annually, and each production batch is approved prior to release of
any product for sale.

     Following manufacturing, the Company's products are shipped to a public
warehouse facility outside St. Louis, Missouri that specializes in OTC drug
and toiletries packaged goods.  Products are shipped from this public
warehouse, as needed, directly to the Company's customers.

     The Company believes that contract manufacturing is generally equal to,
or less expensive than, in-house manufacturing for a variety of reasons
including the significant amount of over-capacity present in much of the
industry that has led to competition among manufacturers for contracts such as
those entered into by the Company.  Although the Company typically has a
manufacturing agreement with a single source for each product, multiple
sources are generally available.  The Company has never experienced a material
interruption of supply from any of its manufacturers.  However, in those
instances in which it has only a single source of supply, any material delay
or cessation of production by the Company's contract manufacturers could have
a material adverse impact on the Company's results of operations.  The Company
does not believe that the level of manufacturing over-capacity in the industry
is likely to change significantly in the near future and, accordingly, does
not believe that its reliance upon contract manufacturers will have a material
adverse effect on the Company's operations.


Trademarks

     All of the Company's products have recognized trademarks associated with
them.  The Company believes its trademarks have significant value in marketing
its products.  Federally registered trademarks have a perpetual life as long
as they are timely renewed and used properly as trademarks, subject to the
right of third parties to seek cancellation of the marks.

                                      3
<PAGE>
     Garfield is a trademark of PAWS Incorporated, which has granted a
nonexclusive license to the Company for use of the mark in connection with
children's multivitamins in the United States.

     Derifil is a trademark of Rystan Company, Inc. and Humibid is a trademark
of Medeva Pharmaceuticals, Inc.  The Company markets these two brands under
sales and marketing agreements with the above-named companies.


Competition

     The OTC pharmaceutical and toiletry products markets in which the Company
competes are highly competitive.  While competition occurs on the basis of
product quality and price, the Company believes that brand loyalty and
consumer acceptance are also important factors.  The Company's competitors
include other OTC pharmaceutical companies and large consumer products
companies, all of which have considerably greater financial and marketing
resources than the Company.  The products offered by these companies are often
supported by significantly larger advertising and promotional expenditures and
are generally backed by a larger sales force than those of the Company.  In
addition, the Company's competitors have often been willing to use aggressive
spending on trade promotions as a strategy for building market share at the
expense of their competitors, including the Company.


Government Regulation

The Company's products are generally subject to government regulations,
primarily by the Food and Drug Administration (the "FDA").  The majority of
the Company's products are regulated by the FDA as OTC drugs, with the rest of
the products being regulated as "cosmetics," "dietary" or "nutritional
supplements," or "medical devices."  All such products must comply with FDA
regulations governing the safety of the products themselves or the ingredients
used in their manufacture.  FDA regulations for all products also include
requirements for product labeling and for adherence to "current good
manufacturing practices" (GMP's).

     All of the Company's OTC drug products are regulated pursuant to the
FDA's "monograph" system for OTC drugs.  The monographs set out the active
ingredients and labeling indications that are permitted for certain broad
categories of OTC drug products (e.g., nasal decongestants).  Compliance with
the monograph provisions means that the product is generally recognized as
safe and effective and is not mislabeled.  Future changes in the monographs
could result in the Company having to revise product labeling and
formulations.

     With regard to all of the Company's products, the FDA may revise
applicable regulations or provide new interpretations of existing regulations
which could necessitate product labeling changes, reformulations or other
changes in the Company's products or the conduct of its business.  While it is
impossible to predict the impact of future FDA actions, to date the Company
has not been materially adversely affected as a result of compliance with FDA
or state regulations.


Product Liability and Insurance

     An inherent risk of the Company's business is exposure to product
liability claims brought by users of the Company's products or others.  While
the Company will continue to take what it considers to be appropriate
precautions, there can be no assurance that it will avoid significant product
liability exposure. The Company maintains product liability insurance that it
believes to be adequate; however, there can be no assurance that it will be
able to retain its existing coverage or that such coverage will be sufficient
to satisfy future product liability claims, if any.


Employees

     As of December 31, 1997, the Company had twenty-seven full-time
employees, including seven sales and marketing personnel and twenty executive
and administrative employees.  The Company believes its relations with its
employees are satisfactory.

                                      4
<PAGE>

Item 2. Properties.

     The Company's executive offices, consisting of an aggregate of
approximately 6,800 square feet, are located in Horsham, Pennsylvania, under a
lease which expires February 2001.  The lease provides for annual rent ranging
from $146,000 for the period ending in February 1998 to $164,000 for the
period ending in February 2001.  The Company believes these offices are
adequate for its current needs.


Item 3. Legal Proceedings.

     There are no material legal proceedings pending against the Company or to
which the Company is a party, and to the knowledge of management, no such
proceedings are threatened or contemplated.

Item 4. Submission of Matters to a Vote of Security Holders.

     None

                                   PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

     The Company's Common Stock is traded under the symbol "MENJ."  From
January 21, 1992 until November 10, 1994, the Company's Common Stock was
traded on the Nasdaq National Market System.  As a result of the Company's
aggregate market value, trading with respect to the Company's Common Stock
moved to the Nasdaq SmallCap Market on November 11, 1994.  The following table
sets forth the high and low bid prices for the Company's Common Stock on the
Nasdaq SmallCap Market.  Prices represent quotations between dealers without
adjustment for retail markups, markdowns and commissions and may not represent
actual transactions.

     Quarter ended                       High            Low

     March 31, 1996 ................    $1.56          $ .81
     June 30, 1996 .................     1.56           1.19
     September 30, 1996 ............     1.50            .88
     December 31, 1996 .............     1.31            .88

     March 31, 1997 ................     1.46           1.08
     June 30, 1997 .................     1.52           1.30
     September 30, 1997 ............     1.90           1.38
     December 31, 1997 .............     1.59           1.21

     On March 17, 1998, the last reported closing price of the Common Stock on
the Nasdaq SmallCap Market was $1.50 per share.  As of March 17, 1998, there
were approximately 79 holders of record of the Common Stock.

     The Company has never paid cash dividends on its capital stock and does
not anticipate paying cash dividends in the foreseeable future, but intends
instead to retain any future earnings for reinvestment in its business.  The
Company's bank loan agreement restricts the payment of dividends on Common
Stock.  Any future determinations to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon the Company's
financial condition, results of operations, capital requirements and such
other factors as the Board of Directors deems relevant.

                                      5
<PAGE>

Item 6. Selected Consolidated Financial Data.

The following table sets forth consolidated financial data with respect to the
Company for each of the years ended December 31, 1993 through 1997, which have
been derived from the Company's audited consolidated financial statements.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes
thereto appearing elsewhere in this report.

<TABLE>
<CAPTION>

                                    SELECTED FINANCIAL INFORMATION
                                 (In thousands, except per share data)

                                                            Year Ended December 31,
                                               ------------------------------------------------------
                                                 1993        1994        1995        1996        1997
<S>                                            <C>         <C>         <C>         <C>        <C>
Consolidated Income Data:
Net sales ...................................  $22,978     $18,843     $14,395     $14,297     $14,446
Cost of goods sold ..........................   10,485       8,840       7,101       6,850       6,894
                                               -------     -------     -------      ------     -------
Gross profit ................................   12,493      10,003       7,294       7,447       7,552
Selling, general and administrative
 expenses ...................................   10,831       7,595       4,914       5,463       6,079
Gain on sale of brand .......................       --         619          --         --           --
Valuation adjustment ........................       --      12,845          --         --           --
Depreciation and amortization ...............    1,851       1,818       1,569       1,536       1,367
                                               -------     -------     -------      ------     -------
Income (loss) from operations ...............     (189)    (11,636)        811         448         106
Lawsuit settlement ..........................   (1,600)         --          --          --          --
Interest (expense) income ...................     (996)       (588)       (237)        (70)         73
                                               -------     -------     -------      ------     -------
Income (loss) before income taxes and
 cumulative effect of change in
 accounting for income taxes ................   (2,785)    (12,224)        574         378         179
Provision (benefit) for income taxes ........     (576)        657         455         416         426
                                               -------     -------     -------      ------     -------
Income (loss) before cumulative effect of
 change in accounting  for income taxes .....   (2,209)    (12,881)        119         (38)       (247)
Cumulative effect as of January 1, 1993 of
 change in method of accounting for
 income taxes ...............................    1,900          --          --          --          --
                                               -------     -------     -------      ------     -------
Net income (loss) applicable to common
 shares .....................................  $  (309)   $(12,881)    $   119      $  (38)    $  (247)
                                               =======     =======     =======      ======     =======

Per share of common stock(1):
Basic income (loss) before cumulative effect
 of change in accounting for income taxes ...   $(0.36)     $(2.10)      $0.02      $(0.01)     $(0.04)
Cumulative effect of accounting change ......     0.31          --          --          --          --
                                               -------     -------     -------      ------     -------
Basic income (loss) per share ...............   $(0.05)     $(2.10)      $0.02      $(0.01)     $(0.04)
                                               =======     =======     =======      ======     =======

Weighted average common shares
  outstanding ...............................    6,148       6,148       6,148       6,148       6,151
                                               =======     =======     =======      ======     =======


                                                                 At December 31,
                                              -------------------------------------------------------
Balance Sheet Data:
Working capital .............................  $ 9,055     $ 7,022     $ 6,697     $ 7,086     $ 8,372
Total assets ................................   47,129      27,473      24,755      23,527      22,453
Long-term debt (excluding current portion) ..    8,565       3,100       1,005          36          --
Stockholders' equity ........................   33,967      21,086      21,205      21,167      20,930

<FN>
(1) Amounts presented assuming dilution would remain the same.
</TABLE>
                                                   6
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and
        Results of Operations.

General
     The Company commenced operations on May 29, 1990 with the acquisition
from SmithKline Beecham of the trademarks, product formulations and production
methodologies, packaging artwork and related inventories for thirty-two OTC
pharmaceutical and toiletry products.

     Prior to 1994 the Company made significant marketing and promotional
expenditures in connection with its strategy of building sales of certain
brands.  The Company introduced Garfield Bath Products in the first quarter of
1994, Garfield Children's Chewable Multivitamins in June 1992, Benzedrex Spray
in July 1992, 5 Day Solid in February 1991 and Cherry Flavored Hold and
Maximum Strength Ornex in June 1991.  The Company supported these new product
introductions with varying combinations of television advertisements in
selected markets, cents-off coupon inserts in Sunday newspapers, trade
allowances to support retailers' efforts to promote these products and "two-
for-one" or "bonus pack" offers directed at consumers.  In 1994, the Company
significantly reduced marketing efforts, especially on the Garfield line,
because the sales return on the marketing investment was lower than
anticipated and cash was required for debt reduction.  While the timing of the
Company's marketing and promotional expenditures may vary significantly from
quarter to quarter and year to year, the Company anticipates that it will
continue to make investments in promotional campaigns designed to stimulate
sales of existing products or introduce new ones.

Results of Operations

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

     Net sales for the year ended December 31, 1997 were $14.4 million
compared to $14.3 million for the comparable period of 1996. Sales for 1997
benefitted from the Company's sales and marketing agreements entered into
during 1996.  These agreements include Humibid Guaifenesin Plus, a
nonprescription formulation of the Rx drug, Humibid; Derifil, an internal
deodorant; and Capsaicin, a generic version of Zostrix(r) cream.  Net sales
for these brands totaled $1.7 million, an increase of $762 thousand over the
year ended December 31, 1996.  Net sales of the Company's remaining brands
decreased $612 thousand compared to 1996.  The decline in sales is due to
continued competition and trade destocking pressures.

     Cost of goods sold for the year 1997 was $6.9 million, or 48% of net
sales, which is comparable to the 1996 cost of goods sold of $6.9 million, or
48% of net sales in 1996.

     Selling, general and administrative expenses were $6.1 million, or 42% of
net sales for the year ended December 31, 1997, as compared to $5.5 million or
38% for the prior year.  The $616 thousand increase in expense is primarily a
result of an increase in Benzedrex advertising costs along with marketing
costs associated with the products under the Company's sales and marketing
agreements.  The Company's own sales force, and its network of independent
brokers, work directly with the major retail customers to focus marketing
support behind individual Company products at the retail store level.

     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 net operating loss carryforwards
will expire during the years 2005 through 2008.  The Company recognized $426
thousand in tax expense, mostly noncash,  for the year ended December 31,
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 $692
thousand in its consolidated balance sheet as of December 31, 1997, which is
primarily made up of two items, net operating loss carryforwards and future
deductible expenses.

     Management is satisfied that it is more likely than not that the deferred
tax assets will be realized primarily from future taxable income expected to
be earned from recurring operations over the next few years.  Management
assesses the realizability of the Company's deferred tax assets on a
continuous basis and adjusts the valuation allowance in the event that
circumstances affecting the realization of the deferred tax assets change.

                                      7
<PAGE>

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

     Net sales for the year ended December 31, 1996 were $14.3 million
compared to $14.4 million for the comparable period of 1995. Sales for 1996
benefitted from the Company's 1996 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(r)
cream.  Net sales for these brands totaled $968 thousand.  Net sales of a
majority the Company's remaining brands decreased $1.1 million compared to
1995. The decline in sales is due to continued competition and trade
destocking pressures.

     Cost of goods sold for the year 1996 was $6.9 million, or 48% of net
sales, compared to $7.1 million,  or 49% of net sales in 1995.  The decrease
in the cost of goods sold, as a percentage of sales, is primarily a result of
the effect of a decrease in returns and allowances.

     Selling, general and administrative expenses were $5.5 million, or 38% of
net sales for the year ended December 31, 1996, as compared to $4.9 million or
34% for the prior year.  The $549 thousand increase in expense is primarily a
result of an increase in marketing costs associated with the products under
the Company's 1996 sales and marketing agreements.  The Company's own sales
force, and its network of independent brokers, work directly with the major
retail customers to focus marketing support behind individual Company products
at the retail store level.

     Interest expense, including finance cost amortization, was $70 thousand
for 1996 compared to $237 thousand for the prior year.  The decrease is due to
lower outstanding debt.  At December 31, 1996, the Company had $661 thousand
of bank debt outstanding.  At December 31, 1995, the bank debt outstanding was
$2.1 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 net operating loss carryforwards
will expire during the years 2005 through 2008.  The Company recognized $416
thousand in tax expense for the year ended December 31, 1996.  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 $1.1 million in its
consolidated balance sheet as of December 31, 1996, which is primarily made up
of two items, net operating loss carryforwards and future deductible expenses.

     Management is satisfied that it is more likely than not that the deferred
tax assets will be realized primarily from future taxable income expected to
be earned from recurring operations over the next few years.  Management
assesses the realizability of the Company's deferred tax assets on a
continuous basis and adjusts the valuation allowance in the event that
circumstances affecting the realization of the deferred tax assets change.

Impact of Inflation

     Management believes that, to date, inflation has not had a significant
impact on its operations.

Liquidity and Capital Resources

     At December 31, 1997, the Company had working capital of $8.4 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 December 31,
1997.  The amount of borrowing, if any, and the subsequent repayments under
the credit facility would be a result of the seasonality of the Company's
sales, marketing plans and profits.  Also, 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.


At the present time, the Company's primary cash requirements are for 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

                                      8
<PAGE>

business.  The Company's strategy is to develop a new product/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.

Impact of Year 2000

     Some of the Company's older computer programs were written using two
digits rather than four digits to define the applicable year.  As a result,
those computer programs have time-sensitive software that recognize a date
using "00" as the year 1900 rather than the year 2000.  If left unchanged,
this could cause a system failure or miscalculations causing disruptions in
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in normal similar business activities.

     The Company has completed an assessment and is in the process of
modifying portions of its software so that its computer system will function
properly with respect to dates in the year 2000 and thereafter.  The total
year 2000 project cost is not expected to be material and will be capitalized.

Earnings per Common Share

     In 1997,  the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share."  Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share.  Earnings per common share amounts for all periods have been presented
to conform to Statement 128 requirements.  There was no impact of restating
earnings per share under Statement 128.

Impact of Recent Accounting Pronouncements

     In June, 1997, the Financial Accounting Standards Board issued Statements
No. 130, "Reporting Comprehensive Income" and Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information," both of which are
required to be adopted on January 1, 1998.  Statement 130 requires financial
statement reporting of all nonowner related changes in equity for the periods
being presented.  Statement 131 requires disclosure of revenue, earnings and
other financial information pertaining to business segments by which a company
is managed, as well as factors used by management to determine segments.  The
Company believes adoption of Statement 130 and Statement 131 will have no
effect on its financial reporting.











                                      9
<PAGE>

Item 8. Financial Statements and Supplementary Data.


                        REPORT OF INDEPENDENT AUDITORS


Board of Directors
MENLEY & JAMES, INC.

     We have audited the accompanying consolidated balance sheets of Menley &
James, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997.  Our audits also included
the financial statement schedule listed in the Index at Item 14(a).  These
financial statements and schedule are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Menley & James, Inc. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.  Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.



                                        /s/ ERNST & YOUNG LLP
                                        ---------------------
                                            ERNST & YOUNG LLP


Philadelphia, Pennsylvania
February 6, 1998


                                      10
<PAGE>

                             MENLEY & JAMES, INC.
                         CONSOLIDATED BALANCE SHEETS
                                (In thousands)

                                                         December 31,
                                                    ----------------------
                                                      1996           1997
                                                      ----          ----
                    ASSETS

Current assets:
  Cash and cash equivalents ....................    $ 2,205        $ 2,879
  Accounts receivable, net of allowances of
    $524 in 1996 and $464 in 1997 ..............      2,721          2,474
  Inventory ....................................      3,402          2,844
  Prepaid expenses .............................        578          1,006
  Deferred tax asset ...........................        504            692
                                                    -------        -------
  Total current assets .........................      9,410          9,895
Property and equipment, net ....................      1,360          1,435
Product lines, trade names and
 packaging designs, net ........................     12,168         11,123
Deferred tax asset .............................        561             --
Other ..........................................         28             --
                                                    -------        -------
  Total assets .................................    $23,527        $22,453
                                                    =======        =======

     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable .............................    $ 1,109        $   840
  Accrued expenses .............................        541            647
  Current maturities of long-term debt .........        674             36
                                                    -------        -------
  Total current liabilities ....................      2,324          1,523
Long-term debt .................................         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
    was 6,148,518 in 1996 and 6,163,518
    shares in 1997 .............................         61             62
  Additional paid-in capital ...................     45,454         45,463
  Accumulated deficit ..........................    (24,348)       (24,595)
                                                    -------        -------
Total stockholders' equity .....................     21,167         20,930
                                                    -------        -------
  Total liabilities and stockholders' equity        $23,527        $22,453
                                                    =======        =======


                           See accompanying notes.

                                      11
<PAGE>
                             MENLEY & JAMES, INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share data)



                                                   Year Ended December 31,
                                              -------------------------------
                                                1995        1996        1997
                                                ----        ----       ----

Net sales ..................................  $14,395     $14,297     $14,446
Cost of goods sold .........................    7,101       6,850       6,894
                                              -------     -------     -------
Gross profit ...............................    7,294       7,447       7,552
Selling, general and administrative expenses    4,914       5,463       6,079
Depreciation and amortization ..............    1,569       1,536       1,367
                                              -------     -------     -------
Income from operations .....................      811         448         106
Interest (expense) income ..................     (237)        (70)         73
                                              -------     -------     -------
Income before income taxes .................      574         378         179
Provision for income taxes .................      455         416         426
                                              -------     -------     -------
Net income (loss) ..........................  $   119     $   (38)    $  (247)
                                              =======     =======     =======

Basic income (loss) per share ..............  $  0.02     $ (0.01)    $ (0.04)
                                              =======     =======     =======

Diluted income (loss) per share ............  $  0.02     $ (0.01)    $ (0.04)
                                              =======     =======     =======

Weighted average number of common shares
  outstanding - basic ......................    6,148       6,148       6,151
                                              =======     =======     =======

Weighted average number of common shares
  outstanding - diluted ....................    6,152       6,148       6,151
                                              =======     =======     =======


                           See accompanying notes.

                                      12
<PAGE>
                             MENLEY & JAMES, INC.
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                               (In thousands)

                                        Additional                      Total
                               Common     Paid-in   Accumulated    Stockholders'
                                Stock     Capital     Deficit           Equity
                               ------     --------    ---------    -------------
Balance, December 31, 1994 ..  $   61      $45,454    $(24,429)         $21,086
  Net income ................                              119              119
                               ------      -------     -------          -------
Balance, December 31, 1995 ..      61       45,454     (24,310)          21,205
  Net loss ..................                              (38)             (38)
                               ------      -------     -------          -------
Balance, December 31, 1996 ..      61       45,454     (24,348)          21,167
  Net loss ..................                             (247)            (247)
  Exercise of stock options .       1            9                           10
                               ------      -------     -------          -------
Balance, December 31, 1997 ..  $   62      $45,463    $(24,595)         $20,930
                               ======      =======     =======          =======



                            See accompanying notes.

                                       13
<PAGE>
                              MENLEY & JAMES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                                       Year Ended December 31,
                                                    ---------------------------
                                                      1995      1996      1997
                                                      ----      ----     ----
Cash flows from operating activities:
  Net income (loss) ..............................   $  119   $  (38)     (247)
  Adjustments to reconcile net income (loss)
    to net cash provided by operating
    activities:
      Depreciation and amortization ..............   1,569     1,536     1,367
      Amortization of deferred financing costs ...      37        38        28
      Deferred income taxes ......................     420       427       373
      Changes in operating assets and liabilities:
        Accounts receivable ......................     572       412       247
        Inventory ................................     777       423       558
        Prepaid expenses .........................      40       (77)     (428)
        Accounts payable .........................    (243)      294      (269)
        Accrued expenses .........................    (438)      (32)      106
                                                    ------    ------    ------
  Net cash provided by operating activities ......   2,853     2,983     1,735

Cash flows used in investing activities:
  Property purchases, net of capital
    lease obligation .............................    (216)     (314)     (397)
                                                    ------    ------    ------

Cash flows used in financing activities:
  Proceeds from issuance of common stock, net ....      --        --        10
  Repayment of borrowings ........................  (2,200)   (1,452)     (674)
                                                    ------    ------    ------
  Net cash used in financing activities ..........  (2,200)   (1,452)     (664)
                                                    ------    ------    ------

Net increase in cash .............................     437     1,217       674
Cash and cash equivalents, beginning of year .....     551       988     2,205
                                                    ------    ------    ------
Cash and cash equivalents, end of year ...........  $  988    $2,205    $2,879
                                                    ======    ======    ======



                            See accompanying notes.

                                       14
<PAGE>

                             MENLEY & JAMES, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Organization and Basis of Presentation

     Menley & James, Inc. ("the Company") and its wholly owned subsidiary,
Menley & James Laboratories, Inc. were incorporated in Delaware in 1990.  The
Company, through Menley & James Laboratories, Inc., currently markets and
distributes a portfolio of over-the-counter pharmaceutical and toiletries
products to drugstores, supermarkets, and other mass merchandisers throughout
the United States.


Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation
     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Menley & James Laboratories, Inc.  All
material intercompany transactions and accounts have been eliminated.


Use of Estimates
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes.  Actual results could differ from those estimates.


Revenue Recognition
     Revenue is recognized when products are shipped.  Provisions for
estimated returns and cash discounts are made when revenues are recognized.


Cash Equivalents
     Cash equivalents consist of highly liquid temporary cash investments with
original maturities less than three months which are valued at cost plus
accrued interest.


Inventories
     Inventories are stated at the lower of cost or market by the first-in,
first-out method.


Product Lines, Trade Names and Packaging Designs
     Substantially all of the product lines and trade names were recorded at
the time of the acquisition in 1990 and allocated among the brands based on
valuations performed at that time.

     Packaging designs are being amortized over five years.  Product lines and
trade names are being amortized over fourteen years.  Accumulated amortization
at December 31, 1996 and 1997 was $8.7 million and $9.8 million, respectively.
Amortization expense relating to product lines, trade names and packaging
designs was $1.3 million, $1.2 million and $1.1 million for the years 1995,
1996 and 1997, respectively.

     Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") 121, "Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."  The adoption of SFAS 121 did not have a
material effect on the Company's consolidated financial statements.

     In the event that facts and circumstances indicate that intangible or
other assets may be impaired, an evaluation of the recoverability would be
performed.  If an evaluation is required, the estimated future undiscounted
cash flows associated with the asset would be compared to the assets carrying
amount to determine if a write-down to market value or discounted cash flow
value is required.

                                      15
<PAGE>

                             MENLEY & JAMES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)


Property and Equipment
     Property and equipment is carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.  Accumulated depreciation at December 31, 1996 and
1997 was $1.6 million and $1.9 million, respectively.  Depreciation expense
was $291,000, $380,000 and $280,000 for years 1995, 1996 and 1997,
respectively.


Consumer Promotions
     The estimated redemption value of coupons is charged to marketing and
promotion expense when the coupons are distributed to the consumer.  The
incremental product cost of "two-for-one" or "bonus pack" offers is charged to
advertising and promotion expense as sales of the related product occur.


Income Taxes
     Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards 109, "Accounting for Income Taxes." Under Statement 109,
the liability method is used in accounting for income taxes.  Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.


Stock-Based Compensation.
     The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to employees" (APB 25) and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options.  The
effect of applying Statement No. 123's fair value method to the Company's
stock-based awards results in pro forma net loss and loss per share that are
not materially different from amounts reported.


Earnings per Common Share
     In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share."  Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share.  Earnings per common share amounts for all periods have been presented
to conform to Statement 128 requirements.  There was no impact of restating
earnings per share under Statement 128.


Impact of Recent Accounting Pronouncements
     In June 1997, the Financial Accounting Standards Board issued Statements
No. 130, "Reporting Comprehensive Income," and Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information," both of which are
required to be adopted on January 1, 1998.  Statement 130 requires financial
statement reporting of all non-owner related changes in equity for the periods
being presented.  Statement 131 requires disclosure of revenue, earnings and
other financial information pertaining to business segments by which a company
is managed, as well as factors used by management to determine segments.  The
Company believes adoption of Statement 130 and Statement 131 will have no
effect on its financial reporting.


                                      16
<PAGE>

                             MENLEY & JAMES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 3 - Inventories

     Inventories consist of the following:

                                               December 31,
                                             1996           1997
                                             ----          ----
                                              (In thousands)

     Raw materials ...................     $ 1,078        $ 1,095
     Work in process .................         191            280
     Finished goods ..................       2,133          1,469
                                           -------        -------
                                           $ 3,402        $ 2,844
                                           =======        =======

Note 4 - Long-Term Debt

   Long-term debt consists of:
                                                December 31,
                                              1996           1997
                                              ----          ----
                                               (In thousands)

     Term loan .......................     $   661        $     -
     Obligations under capital lease .          49             36
                                           -------        -------
                                               710             36
     Less: current maturities ........         674             36
                                           -------        -------
     Total long-term debt ............     $    36        $     -
                                           =======        =======


     At December 31, 1997, the Company had no amounts outstanding under its
term loan.  At December 31, 1996, the Company had $661 thousand outstanding
under its term loan which was paid on January 23, 1997.  The term loan
interest was at a fixed rate of 6.65%, and was secured by a first lien on all
assets of the Company.  At December 31, 1996 and 1997, there was no amount
outstanding under the revolving credit facility which has a maximum borrowing
limit of $3.0 million and terminates on June 30, 1998, unless extended.  The
Company pays a 0.25% commitment fee on the unused portion of the credit
facility.  Letters of credit may be issued under this facility up to a maximum
of $1.0 million.  No letters of credit were issued during 1996 or 1997.

     The Company is permitted to choose between various interest rate options
for the revolving credit facility, to specify the portion of the borrowings to
be covered by specific interest rate options and to specify the interest
period to which the interest rate options are to apply, subject to certain
parameters.  The interest rate options available to the Company at December
31, 1997 were Prime rate or LIBOR rate plus a borrowing margin of 0.75% and
3.0%, respectively.

     The Company's loan agreement contains financial and other covenants
including limitations on the payment of dividends, restrictions on the sale of
assets, limitations on capital expenditures and maintenance of minimum levels
of sales, working capital, net worth, and debt coverage ratios.

     The Company leases computer equipment under a capital lease which expires
June 2000 and has been recorded at its fair market value.  Future minimum
payments under this lease are as follows:  years ending December 31, 1998 and
1999 - $13,500; five months ended June 30, 2000 - $8,000.

     Interest payments for the years 1995, 1996 and 1997 were approximately
$217,000, $103,000 and $5,000 respectively.

                                      17
<PAGE>

                             MENLEY & JAMES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 5 - Income Taxes

     Significant components of the Company's deferred tax assets and
liabilities at December 31, were as follows (in thousands):

                                                     1995      1996      1997
                                                     ----      ----     ----

Deferred tax liabilities:
  Prepaid expenses and other ..................    $   90   $   155     $ 282
  Amortization of organizational costs and
    packaging designs .........................       408       348       255
  Depreciation ................................       291       309       231
                                                   ------    ------     -----
Total deferred tax liabilities ................    $  789    $  812     $ 768
                                                   ------    ------     -----

Deferred tax assets:
  Net operating loss carryforwards ............     3,142     2,768     2,317
  Promotional expenses ........................       146       174       157
  Nondeductible allowances and reserves .......       334       245       220
  Other .......................................        49        80        75
                                                   ------    ------     -----
Total deferred tax assets .....................     3,671     3,267     2,769
Valuation allowance for deferred tax assets ...    (1,390)   (1,390)   (1,309)
                                                   ------    ------     -----
Deferred tax assets, net of valuation allowance     2,281     1,877     1,460
                                                   ------    ------     -----
Net deferred tax assets .......................    $1,492    $1,065     $ 692
                                                   ======    ======     =====


     Significant components of the provision for income taxes are as follows
(in thousands):

                                                     1995      1996      1997
                                                     ----      ----     ----
Current:
  Federal .....................................    $   20    $    9    $   25
  State .......................................        15       (20)       28
                                                   ------    ------     -----
Total current .................................        35       (11)       53
Deferred ......................................       420       427       373
                                                   ------    ------     -----
  Provision for income taxes ..................    $  455    $  416     $ 426
                                                   ======    ======     =====


     The reconciliation between the Company's provision for income taxes and
the U.S. federal statutory tax rates is (in thousands):

                                                     1995      1996      1997
                                                     ----      ----     ----
Tax at U.S. statutory rates ...................    $  195    $  129     $  61
State taxes, net of federal tax benefit .......        29        19        94
Product lines and other amortizatio
  not deductible for tax ......................       411       375       339
Valuation adjustment ..........................      (192)       --        --
Decrease in valuation reserve .................        --        --       (81)
Other .........................................        12      (107)       13
                                                   ------    ------     -----
Provision for income taxes ....................    $  455    $  416     $ 426
                                                   ======    ======     =====


     The Company has approximately $5.7 million of tax return net operating
loss carryforwards currently available on an unlimited basis to offset federal
net taxable income.   These loss carryforwards expire in the years 2005
through 2008.

                                      18
<PAGE>

                             MENLEY & JAMES, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Note 6 - Leases

     The Company leases an office facility and automobiles under noncancelable
operating leases which expire at various dates through 2001.  Future minimum
payments under these leases consist of the following at December 31, 1997:
1998 - $164,000;  1999 - $164,000;  2000 - $169,000; 2001 - $14,000.

     Rental expense for operating leases for the years 1995, 1996 and 1997 was
$282,000, $150,000 and $158,000 respectively.


Note 7 - Common Stock and Stock Options

     In 1991, the Board of Directors adopted, and the stockholders approved, a
stock option plan which authorized the grant of stock options with respect to
380,000 shares of the Company's common stock and granted options to purchase
289,180 shares of common stock at an exercise price of $7.89 per share.
During 1995, options were granted to purchase 30,000 shares of common stock at
an exercise price of $0.69 per share.  On February 1, 1996, 224,960 options
were revalued reducing the exercise price from $7.89 per share to $1.25 per
share, which reflected the share price at the close of business February 1,
1996. During 1996, options were granted to purchase 15,000 and 30,000 shares
of common stock at exercise prices of $1.19 and $1.56 respectively.  During
1997, options were granted to purchase 30,000 shares of common stock at an
exercise price of $1.38 per share.  Additionally, during 1997, options to
purchase 15,000 shares of common stock were exercised at an exercise price of
$0.69 per share and options to purchase 30,000 shares of common stock expired.
At December 31, 1997, 269,960 options are vested and exercisable.  As of
December 31, 1997 one half of the options issued in 1997 were exercisable; the
remaining options shall become exercisable in two equal installments on
January 1, and April 1, 1998.


Note 8 - Commitments

     The Company has license and sales and marketing agreements to manufacture
and/or market certain products.  Under these agreements the Company is
required to pay royalties based upon various percentages of net sales and/or
net profits.  Additionally, pursuant to the above agreements, the Company may
be entitled to receive monies based on losses, if any, incurred during the
year on certain of the products.  Net sales of all products under agreements,
for the years ended 1995, 1996 and 1997 were equal to 5.0%, 9.3% and 12.5%
respectively, of total net sales.  Royalty
expense, net, for the years 1995, 1996 and 1997 was $48,000, $23,000 and
$578,000, respectively.


Note 9 - Supplemental Information

     Advertising expense for the years 1995, 1996 and 1997 was $1,000,
$613,000 and $1.0 million, respectively.

     For each of the years 1995, 1996 and 1997, one customer accounted for
approximately  13%, 17% and 20%, respectively, of net sales.  The Company
operates in the health and beauty care segments and primarily sells its
products to eight trade classes.  These trade classes are drug wholesalers,
drug chains, mass merchandisers, food chains, grocery wholesalers, service
merchandisers, barber and beauty customers and the government.  The largest of
these are drug wholesalers and drug chains, which account for approximately
46% and 28%, respectively, of accounts receivable as of December 31, 1997.  In
the Company's opinion, there is not a material risk of loss due to credit
concentration.


                                      19
<PAGE>

                                   PART III


Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.

        None.

Item 10. Directors and Executive Officers of the Company.

     The information with respect to directors and executive officers of the
Company contained under the caption "Election of Directors" in the Company's
Proxy Statement to be used in connection with the Annual Meeting of
Stockholders to be held on May 21, 1998, is incorporated herein by reference
in response to this item.

     The following table sets forth certain information with respect to the
executive officers and directors of the Company:

Name                           Age    Position
----                           ---    --------
Lawrence D. White ..........   52     Director, Chairman of the Board,
                                      President and Chief Executive Officer
Greg L. Kearl ..............   47     Director, Executive Vice President,
                                      Chief Operating Officer, Secretary and
                                      Treasurer
William W. Yeager ..........   57     Chief Financial Officer
Peter J. Carr (2) ..........   42     Director
James T. McMillan, II (1) ..   51     Director
Bruce W. Simpson (2) .......   56     Director
James E. Thomas (1) (2) ....   37     Director

(1) Member of the Audit Committee
(2) Member of the Compensation Committee

     Lawrence D. White has served as Director, Chief Executive Officer and
President of the Company since its inception in 1990 and as Chairman of the
Board since November 1990.  From January 1986 to May 1990 he was Vice
President of Marketing and Sales for SmithKline Consumer Products, a division
of SB.  Prior to working at SB, Mr. White was at Revlon's Norcliff Thayer
Division as Vice President of Marketing from 1982 to 1985, as Director of
Brand Management from 1981 to 1982, as Marketing Group Director from 1978 to
1981, and as a Brand Manager from 1977 to 1978.

     Greg L. Kearl has served as Executive Vice President and Secretary of the
Company since its inception in 1990, as Chief Operating Officer since January
1991 and as Treasurer and a Director since April 1991.  From 1984 until May
1990 he was employed by SmithKline Consumer Products in a variety of
positions, including Vice President of Sales from August 1986 until May 1990,
Director -- New Products from August 1986 to November 1986, and National Sales
Director from 1984 to August 1986.  Prior to working at SB, Mr. Kearl was at
McNeil Consumer Products Company in a variety of positions including Eastern
Regional Sales Manager from 1983 to 1984, as Director of Special Markets
Region from 1982 to 1983, and as Director of Sales Administration from 1981 to
1982.

     William W. Yeager has served as Chief Financial Officer of the Company
since July 1991.  Mr. Yeager is a Certified Public Accountant.  From October
1990 to June 1991 he was Director of Finance and  Controller at Davco Food
Inc., a restaurant chain.  From 1982 to 1990 he served as Executive Vice
President and Chief Financial Officer for Frycor Inc., a restaurant operating
concern.


Peter J. Carr has served as a Director of the Company since its inception.  He
has been a principal of Carr & Company, LLC, an investment and financial
advisory company, since January 1990.  Mr. Carr was formerly a

                                      20
<PAGE>

Managing Director and a member of the Board of Directors of Dean Witter
Capital Corporation and Dean Witter Realty Inc., where he was employed from
September 1982 to December 1989.  Mr. Carr is also President and Chairman of
Empyrean Holdings Corporation, a private equity investment company.

     James T. McMillan, II was elected a Director July, 1996.  Mr. McMillan is
the Chairman and Chief Executive Officer of Ferndale Laboratories, Inc.  Mr.
McMillan has served as Chairman of Ferndale Laboratories, Inc. since 1990.
He joined Ferndale Laboratories, Inc. in 1985 as Vice Chairman and Chief
Executive Officer.

     Bruce W. Simpson was elected a Director July, 1996.  Mr. Simpson is the
President and Chief Executive Officer of Medeva Pharmaceuticals, Inc.
(formerly Adams Laboratories, Inc.), a division of Medeva Plc.  From 1973 to
1992 he was employed by Fisons Corporation in a variety of positions including
Executive Vice President and General Manager of U.S. Operations from October
1988 to February 1992 and Vice President Sales and Marketing from June 1982 to
October 1988.

     James E. Thomas has served as a Director of the Company since 1992.  He
has been employed since 1989 by E. M. Warburg, Pincus & Co., LLC, where he
currently serves as a Managing Director.  Prior to that, he was Vice-President
with Goldman Sachs International.  Mr. Thomas is a Director of Anergen, Inc.,
Celtrix Pharmaceuticals, Inc., Transkaryotic Therapies, Inc., Xomed Surgical
Products, Inc., and a number of privately-held companies.

     The Board of Directors currently consists of six directors.  All
directors are elected by the stockholders at each annual meeting to serve
until the next annual meeting and until their successors are elected and
qualified.  The Company has agreed that, so long as Warburg, Pincus
Investors, L.P. holds at least 20% of the outstanding Common Stock, Warburg
will have the right to designate up to two directors and the Company will use
its best efforts to cause such persons to remain on the Board of Directors,
provided, however, that in no event does Warburg have the right under the
agreement to designate more than one-half of the number of directors serving
at any time.  Currently, only one director serves as a designee of Warburg,
although Warburg has the right to nominate a second director.  If Warburg
owns less than 20%, but more than 5% of the Common Stock, Warburg will have
the right to designate one director.  Officers are selected by and serve at
the discretion of the Board of Directors.

     The Company's Restated Certificate of Incorporation provides that, to the
fullest extent permitted by Delaware law, its directors shall not be liable
for monetary damages for breach of the directors' fiduciary duty of care to
the Company and its stockholders.  This provision in the Restated Certificate
of Incorporation does not eliminate the duty of care, and in appropriate
circumstances, equitable remedies such as injunction, rescission or other
forms of nonmonetary relief would remain available under Delaware law.  In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Company, for acts or omissions not taken
or made in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law.  The provision also does not
affect a director's liabilities under any other laws, such as the federal
securities laws.


Item 11. Executive Compensation.

     The information with respect to executive compensation is contained under
the caption "Executive Compensation" in the Company's Proxy Statement to be
used in connection with the Annual Meeting of Stockholders to be held on May
21, 1998, and is incorporated herein by reference in response to this item.


Item 12. Security Ownership of Certain Beneficial Owners and Management.

     The information with respect to security ownership of certain beneficial
owners and management contained under the caption "Security Ownership of
Management and Others" in the Company's Proxy Statement to be used in
connection with the Annual Meeting of Stockholders to be held on May 21, 1998
is incorporated herein by reference in response to this item.


                                      21
<PAGE>

Item 13. Certain Relationships and Related Transactions.

     The information with respect to certain relationships and related
transactions contained under the caption "Certain Transactions" in the
Company's Proxy Statement, to be used in connection with the Annual Meeting of
Stockholders to be held on May 21, 1998, is incorporated herein by reference
in response to this item.

                                   PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

    (a)  Exhibits

    (1)  The following Consolidated Financial Statements of the Company are
         included in Item 8 of this report:
         Consolidated Balance Sheets as of December 31, 1996 and 1997.
         Consolidated Statements of Operations for the years ended December
         31, 1995, 1996 and 1997.
         Consolidated Statements of Stockholders' Equity for the years ended
         December 31, 1995, 1996 and 1997.
         Consolidated Statements of Cash Flows for the years ended December
         31, 1995, 1996 and 1997.
         Notes to Consolidated Financial Statements.

    (2)  The following Consolidated Financial Statement Schedule of the
         Company as required by Item 8 of Form 10-K and Item 14(d) of Form 10-
         K for the years ended December 31, 1995, 1996 and 1997 is filed as
         part of this report:

            Page       Schedule
            ----       --------
             25        Schedule II -- Valuation and Qualifying Accounts
                                      and Reserves.

         All supporting schedules other than the above have been omitted,
         because they are not required or the information to be set forth
         therein is included in the financial statements or in the notes
         thereto.
    (3)  Listing of Exhibits (An exhibit index immediately preceding the
         exhibits indicates the page number where each exhibit can be found):
         The Company will furnish, upon request, any exhibit listed herein
         upon the payment of a fee not to exceed reasonable expenses incurred
         by the Company in furnishing such exhibit.
  *3.1   Restated Certificate of Incorporation of the Company, as amended on
         March 19, 1991
  *3.2   By-Laws of the Company, amended as of November 26, 1991
  *4.1   Specimen Stock Certificate for Common Stock $.01 par value
 *10.1   Lease between Commonwealth Corporate Center Associates and the
         Company, dated April 30, 1990 and First Amendment, dated as of May
         24, 1991, relating to property at 100 Tournament Drive, Horsham,
         Pennsylvania
 *10.2   1991 Stock Option Plan of the Company, amended as of November 20,
         1991
 *10.5   Asset Purchase Agreement, dated as of April 9, 1990, among the
         Company, SmithKline Beecham Corporation and SmithKline Beecham
         Americas Inc., including as Exhibit B thereto the Transitional
         Services Agreement between the Company and SB
 *10.8   Shareholder Agreement, dated as of November 6, 1990, among the
         Company, Warburg, Pincus Investors, L.P., William Learnard, Lawrence
         D. White, Walter W. Witoshkin, Greg L. Kearl, M&J Holdings L.P. and
         The Witoshkin 1990 Trust; Amendment No. 1 thereto, dated as of March
         22, 1991 and Amendment No. 2 thereto, dated as of November 22, 1991.
 *10.9   Form of Agreement, dated as of November 20, 1991, by and between the
         Company and Warburg, Pincus Investors, L.P.
 *10.10  License Agreement for Garfield multivitamin products dated as of
         March 22, 1991, by and between the Company and United Feature
         Syndicate, Inc.
 *10.11  License Agreement dated as of May 29, 1990, by and between the
         Company and SmithKline Beecham Corporation, as amended on October 31,
         1991.
 *10.12  Form of Executive Stock Purchase Agreement


                                      22
<PAGE>

  10.13  Loan Agreement, dated as of December 2, 1993, between Menley & James
         Laboratories, Inc. and Meridian Bank. (Incorporated by reference to
         the Company's Current Report on Form 8-K filed December 20, 1993)
  10.14  Security Agreement, dated as of December 2, 1993, between Menley &
         James Laboratories, Inc. and Meridian Bank. (Incorporated by
         reference to the Company's Current Report on Form 8-K filed December
         20, 1993)
  10.15  Trademark Security Agreement, dated as of December 1, 1993, between
         Menley & James Laboratories, Inc. and Meridian Bank. (Incorporated by
         reference to the Company's Current Report on Form 8-K filed December
         20, 1993)
  10.16  Guaranty, dated as of December 2, 1993, between the Registrant and
         Meridian Bank (Incorporated by reference to the Company's Current
         Report on Form 8-K filed December 20, 1993)
  10.17  First Amendment to Loan Agreement and Guaranty, dated as of February
         6, 1995, between the Company and Meridian Bank.  (Incorporated by
         reference to the Company's Annual Report on Form 10-K filed March 30,
         1995.  Commission File No. 000-19788).
  10.18  License Agreement for Garfield bath products, dated as of October 26,
         1992, and amended as of July 7, 1993 and June 16, 1994, by and
         between the Company and PAWS Incorporated.  (Incorporated by
         reference to the Company's Annual Report on Form 10-K filed March 30,
         1995.  Commission File No. 000-19788).
  10.19  Amendment for Garfield multivitamin products, dated as of June 16,
         1994 to License Agreement between the Company and PAWS Incorporated.
         (Incorporated by reference to the Company's Annual Report on Form 10-
         K filed March 30, 1995.  Commission File No. 000-19788).
  10.20  Stock Option Agreement, dated as of April 7, 1995, between the
         Company and Alan J. Dalby (Director). (Incorporated by reference to
         the Company's Annual Report on Form 10-K filed March 27, 1996.
         Commission File No. 000-19788).
  10.21  Stock Option Agreement, dated as of April 7, 1995, between the
         Company and Franklin W. Krum (Director). (Incorporated by reference
         to the Company's Annual Report on Form 10-K filed March 27, 1996.
         Commission File No. 000-19788).
  10.22  Severance Agreement, dated as of October 15, 1995, between the
         Company and Greg L. Kearl.  (Incorporated by reference to the
         Company's Annual Report on Form 10-K filed March 27, 1996.
         Commission File No. 000-19788).
  10.23  Severance Agreement, dated as of October 15, 1995, between the
         Company and Lawrence D. White.  (Incorporated by reference to the
         Company's Annual Report on Form 10-K filed March 27, 1996. Commission
         File No. 000-19788).
  10.24  Second Amendment to Lease dated, as of December 20, 1995, relating to
         property at 100 Tournament Drive, Horsham, Pennsylvania.
         (Incorporated by reference to the Company's Annual Report on Form 10-
         K filed March 27, 1996.  Commission File No. 000-19788).
  10.25  Revisions, dated as of May 1, 1995, October 11, 1995 and November 16,
         1995 to the Loan Agreement between the Company and Meridian Bank.
         (Incorporated by reference to the Company's Annual Report on Form 10-
         K filed March 27, 1996.  Commission File No. 000-19788).
  10.26  Letter, dated as of February 13, 1996, repricing outstanding stock
         options under the Company's 1991 Stock Option Plan.  (Incorporated by
         reference to the Company's Annual Report on Form 10-K filed March 27,
         1996.  Commission File No. 000-19788).
  10.27  Form of Director Stock Option Agreement. (Incorporated by reference
         to the Company's Annual Report on Form 10-K filed March 28, 1997.
         Commission File No. 000-19788)
  10.28  Revisions, dated as of June 24, 1996 and October 7, 1996 to the Loan
         Agreement between the Company and CoreStates Bank.  (Incorporated by
         reference to the Company's Annual Report on Form 10-K filed March 28,
         1997.  Commission File No. 000-19788)
 *22.1   List of Subsidiaries
  27.1   Financial Data Schedule for the year ended December 31, 1997,
         submitted electronically to the Securities and Exchange Commission.

* Filed as an exhibit to the Registration Statement on Form S-1, Registration
  No. 33-44260, declared effective by the Securities and Exchange Commission
  on January 17, 1992, which is incorporated by reference herein.
    (b) No reports on Form 8-K were filed during the period covered by this
        report.
    (c) Exhibits -- The response to this portion of Item 14 is submitted as a
        separate section of this report.
    (d) Financial Statement Schedules -- The response to this portion of Item
        14 is submitted as a separate section of this report.


                                      23
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.


                                          /s/ Lawrence D. White
                                        -------------------------------------
                                              Lawrence D. White
                                        President and Chief Executive Officer

Date:  March 27, 1998

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

        Signature                    Title                           Date


  /s/ Lawrence D. White
------------------------
   (Lawrence D. White)    Director, Chairman of the Board,       March 27, 1998
                          President and Chief Executive Officer
                          (Principal Executive Officer)


    /s/ Greg L. Kearl
------------------------
     (Greg L. Kearl)      Director, Executive Vice President,    March 27, 1998
                          Chief Operating Officer, Secretary
                          and Treasurer


  /s/ William W. Yeager
------------------------
   (William W. Yeager)    Chief Financial Officer (Principal     March 27, 1998
                          Financial Officer and Principal
                          Accounting Officer)



    /s/ Peter J. Carr
------------------------
      (Peter J. Carr)     Director                               March 27, 1998


/s/ James T. McMillan, II
-------------------------
 (James T. McMillan, II)  Director                               March 27, 1998



  /s/ Bruce W. Simpson
-------------------------
    (Bruce W. Simpson)    Director                               March 27, 1998



  /s/ James E. Thomas
-------------------------
     (James E. Thomas)    Director                               March 27, 1998


                                       24
<PAGE>

<TABLE>
<CAPTION>

                                                                                         SCHEDULE II



                                          MENLEY & JAMES, INC.
                             VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                             (In thousands)

     The Company's valuation accounts were as follows:
                                             Balance at     Charged to                    Balance at
                                              Beginning      Costs and                      End of
                                              of Period       Expenses     Deductions       Period
                                             ----------      ---------     ----------     ----------
<S>                                              <C>            <C>            <C>            <C>
For the year ended December 31, 1995
Deducted from asset accounts:
  Allowance for doubtful accounts ...........    $  169         $  109         $  108         $  170
  Reserve for cash discounts ................        75            313            340             48
  Reserve for returns and allowances ........       415          2,313          2,293            435
  Reserve for inventory obsolescence ........        36            191            222              5
  Valuation allowance for deferred tax assets     1,582             --            192          1,390
                                                 ------         ------         ------         ------
    Totals ..................................    $2,277         $2,926         $3,155         $2,048
                                                 ======         ======         ======         ======


For the year ended December 31, 1996
Deducted from asset accounts:
  Allowance for doubtful accounts ...........    $  170         $   50         $  208         $   12
  Reserve for cash discounts ................        48            328            330             46
  Reserve for returns and allowances ........       435          1,938          1,907            466
  Reserve for inventory obsolescence ........         5            112            112              5
  Valuation allowance for deferred tax assets     1,390            --             --           1,390
                                                 ------         ------         ------         ------
    Totals ..................................    $2,048         $2,428         $2,557         $1,919
                                                 ======         ======         ======         ======

For the year ended December 31, 1997
Deducted from asset accounts:
  Allowance for doubtful accounts ...........    $   12       $     38         $   24         $   26
  Reserve for cash discounts ................        46            331            329             48
  Reserve for returns and allowances ........       466          1,558          1,634            390
  Reserve for inventory obsolescence ........         5            257            201             61
  Valuation allowance for deferred tax assets     1,390             --             81          1,309
                                                 ------         ------         ------         ------
    Totals ..................................    $1,919         $2,184         $2,269         $1,834
                                                 ======         ======         ======         ======
</TABLE>

     Deductions from the allowance for doubtful accounts represent
uncollectible accounts written off, net of recoveries. Deductions from the
reserve for cash discounts represent discounts taken by customers during the
periods. Deductions from the reserve for returns and allowances represent
claims authorized during the periods.  Deductions from the reserve for
inventory obsolescence represent inventories written off.

                                      25
<PAGE>