U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended APRIL 30, 1997.
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ________________ to _________________
Commission file number _____________
THE MILLBROOK PRESS INC.
(Exact Name of Small Business Issuer in Its Charter)
DELAWARE 06-1390025
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2 Old New Milford Road, P.O. Box 335
Brookfield, CT 06804
(Address of principal executive offices)
(203) 740-2220
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 / /
APPLICABLE ONLY TO CORPORATE ISSUES
State the number of shares outstanding of each of the issuer's classes
of common equity, as of April 30, 1997
3,455,000 shares of Common Stock outstanding
- --------------------------------------------------------------------------------
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
<PAGE>
THE MILLBROOK PRESS, INC.
INDEX TO FORM 10-QSB
April 30, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three and nine months ended
April 30, 1996 and 1997
Balance Sheet as of April 30, 1997
Statement of Stockholder's Equity for the nine months ended
April 30, 1997
Statements of Cash Flows for nine months ended April 30,
1996 and 1997
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
<PAGE>
THE MILLBROOK PRESS INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
APRIL 30 APRIL 30
1996 1997 1996 1997
---- ----- ----- ----
<S> <C> <C> <C> <C>
Net sales $7,583,000 $9,905,000 $2,608,000 $3,690,000
Cost of sales 3,825,000 5,418,000 1,299,000 2,040,000
--------- ---------- ---------- ---------
Gross profits 3,758,000 4,487,000 1,309,000 1,650,000
--------- ---------- ---------- ---------
Operating expenses:
Selling and marketing 2,778,000 3,393,000 990,000 1,197,000
General and administrative 894,000 1,623,000 318,000 447,000
------- ---------- -------- -------
Total operating expenses 3,672,000 5,016,000 1,308,000 1,644,000
--------- ---------- ---------- ---------
Operating income (loss) 86,000 (529,000) 1,000 6,000
Interest expense/(income) 156,000 164,000 55,000 (9,000)
------- -------- ------- -------
Net (loss) income (70,000) (693,000) (54,000) 15,000
Preferred dividend accrued (482,000) (284,000) (160,000) 0
--------- --------- --------- -
Net (loss) income available to common stockholders ($552,000) ($977,000) ($214,000) $15,000
---------- ---------- ---------- -------
Net (loss) earnings per share after preferred dividend requirements
(primary and fully diluted) ($0.54) ($0.45) ($0.21) $0.00
</TABLE>
<PAGE>
MILLBROOK PRESS
BALANCE SHEET
APRIL 30, 1997
Cash $ 1,832,000
Accounts Receivable, net 3,495,000
Inventory 4,530,000
Prepaid Expense and Other Assets 117,000
Royalty Advances, net 228,000
-----------
TOTAL CURRENT ASSETS 10,202,000
Plant Costs, net 2,917,000
Royalty Advances, net 60,000
Fixed Assets, net 262,000
Goodwill, net 3,102,000
Other Assets 33,000
-----------
TOTAL ASSETS $16,576,000
Accounts Payable and Accrued expenses $2,943,000
Royalties Payable 169,000
-----------
Current Liabilities 3,112,000
Capital Stock 35,000
Additonal Paid in Capital 17,556,000
Accumulated Deficit (4,127,000)
------------
Total Equity 13,464,000
------------
TOTAL LIABILITIES &
EQUITY $16,576,000
<PAGE>
STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED APRIL 30, 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- ------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ------- ------- -----
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JULY 31, 1996 4,700 $6,190,000 1,026,308 $10,000 $3,991,000 ($3,150,000) $7,041,000
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Preferred stock dividend 284,000 (284,000) 0
Conversion of Preferred Stock (4,700) (6,474,000) 473,692 5,000 6,469,000 0
Issuance of common stock 1,955,000 20,000 7,073,000 7,093,000
Issuance of common stock warrants 23,000 23,000
Net loss (693,000) (693,000)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT APRIL 30, 1997 0 0 3,455,000 $35,000 $17,556,000 ($4,127,000) $13,464,000
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE MILLBROOK PRESS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
1996 APRIL 1997
----------- ----------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($70,000) ($693,000)
Add (deduct) to reconcile net loss to net cash flow:
Depreciation and amortization 887,000 881,000
Accretion of Warrants 0 23,000
Changes in accounts receivable (926,000) (1,411,000)
Changes in inventory (608,000) (1,053,000)
Changes in prepaid expenses and other 123,000 328,000
Changes in payables & accrued expenses 193,000 822,000
-------- -------
Cash used in operations (401,000) (1,103,000)
--------- -----------
CASH FLOW USED IN INVESTING ACTIVIES:
Capital expenditures (55,000) (49,000)
Plant costs (1,080,000) (1,001,000)
----------- -----------
Cash used in investing activities (1,135,000) (1,050,000)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowings under line of credit 1,000,000 (3,242,000)
Proceeds from sale of capital stock 0 7,093,000
-- ---------
Cash provided by financing activities 1,000,000 3,851,000
---------- ---------
NET INCREASE (DECREASE) IN CASH (536,000) 1,698,000
CASH AT BEGINNING OF PERIOD 538,000 134,000
-------- -------
CASH AT END OF PERIOD $2,000 $1,832,000
------- ----------
SUPPLEMENTAL DISCLOSURE:
INTEREST EXPENSE PAID $55,000 ($9,000)
-------- --------
</TABLE>
<PAGE>
THE MILLBROOK PRESS INC.
NOTES TO FINANCIAL STATEMENTS
April 30, 1997
Basis of Presentation
The financial statements of the Millbrook Press Inc. (the Company) included
herein have been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and changes in cash
flows for all period presented have been made. The results of the April 30, 1996
and April 30, 1997 interim periods are not necessarily indicative of the results
that may be expected for the full year.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the audited financial statements and notes thereto for the
fiscal year ended July 31, 1996.
The Company completed its initial public offering on December 23, 1996 whereby
the Company issued and sold 1,955,000 shares of Common Stock and received net
proceeds of $7,093,000. In addition, all the Company's outstanding preferred
stock, including accrued preferred dividends, were converted into 473,692 shares
of common stock. The Company used some of the proceeds from the offering to
repay the bank and bridge loans. Prior to the effectiveness of the initial
public offering, the Company filed an Amended and Restated Certificate of
Incorporation with the State of Delaware whereby its authorized capital stock
increased to 13,000,000 shares, consisting of 12,000,000 shares of Common Stock,
$0.01 par value per share and 1,000,000 shares of Preferred Stock, $0.01 par
value per share.
The Company has reserved 475,000 shares of common stock under its non-qualified
1994 Stock Option Plan ("Option Plan") which provides that a Committee,
appointed by the Board of Directors, may grant stock options to eligible
employees, officers of the Company or its affiliates. The number of shares
reserved for issuance is adjusted in accordance with the provisions of the Plan.
All stock options granted by the Company expire seven years after the grant date
and are issued at exercise prices which are not less than the estimated fair
value of the stock as determined by the Company on the date of grant. Stock
options vest in 20% increments in each of the five years after the date of
grant. When the Company completed its initial public offering, all non-vested
options on the effective date of the initial public offering vested 50% one year
from that date and an additional 50% two years from that date.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
General
The Company is a publisher of children's fiction and non-fiction books, in both
hardcover and paperback, for the consumer and school and public library (S&L)
markets. Since its inception, the Company has published more than 680 hardcover
and 330 paperback books under Millbrook and Copper Beech imprints. The Company's
books have been placed on numerous recommended lists by libraries, retail
bookstores and educational organizations. Books published under the Millbrook
imprint have evolved from information intensive school and library books to
include its current mix of highly graphic, consumer-oriented books. Therefore,
many of its books can be distributed to the school and public library market as
hardcover books while being simultaneously distributed to the consumer market as
either hardcover or paperback books. As a result, the Company is better able to
fully exploit a book's sales potential. However, the Company has incurred
significant expenses relating to the establishment of the infrastructure which
can enable the Company to sell books to the consumer market and/or develop books
that can appeal to both the school and public library market and the consumer
market.
Consumer Market compared to the School and Public Library Market
As the Company sells more of its products in the consumer market, the results of
operations and its financial condition could be influenced by certain
distinctions between the consumer market and the school and public library
market. It is generally more difficult to collect receivables in the consumer
market than in the school and library market. Sales to the consumer market have
a higher return rate than sales to the school and public library market and
accordingly the Company will need to deduct a higher reserve for returns from
its gross sales. Sales to the consumer market have a lower gross profit margin
than sales to the school and library market because consumer sales have higher
sales discounts and promotional allowances than sales to the school and public
library market.
Variability in Quarterly Results
A substantial portion of the Company's business is highly seasonal, causing
significant variations in operating results from quarter to quarter. In the
school and library market, net sales tend to be lowest in the second calendar
quarter and highest in the third calendar quarter, as schools purchase heavily
in anticipation of opening in September. The consumer market also tends to be
highly seasonal and, given the importance of holiday gifts, a large proportion
of net sales can occur in the third calendar quarter in anticipation of the
holiday gift season. The Company expects its future net sales and operating
results will reflect these seasonal factors.
<PAGE>
Sales Incentives and Returns
In connection with the introduction of new books, many book publishers,
including the Company, discount prices of existing products, provide certain
promotional allowances and credits or give other sales incentives to their
customers. The Company intends to continue such practices in the future. In
addition, the practice in the publishing industry is to permit customers
including wholesalers and retailers to return merchandise. Most books not sold
may be returned to the Company, and the Company gives credit. The rate of return
also can have a significant impact on quarterly results since certain
wholesalers have in the past returned large quantities of products at one time
irrespective of marketplace demand for such product, rather than spreading out
the returns during the course of the year. The Company computes net sales by
concurrently deducting a reserve for returns from its gross sales. Return
allowance may vary as a percentage of gross sales based on actual return
experience. The Company believes that as gross sales to the consumer market
increase as a proportion of its overall sales, returns will constitute a greater
proportion of net sales. Although the Company believes its reserves have been
adequate to date, there can be no assurance that returns by customers in the
future will not exceed historically observed percentages or that the level of
returns will not exceed the amount of reserves in the future. In the event that
the amount reserved proves to be inadequate, the Company's operating results
will be adversely affected.
RESULTS OF OPERATIONS
Net sales for the third quarter ended April 30, 1997 increased from $2,608,000
to $3,690,000, or 41% compared with the same period in 1996. Increased sales
resulted from significant increases in trade and special sales due to the large
number of backlist titles, as well as a significant increase in the number of
accounts. Net sales in the nine months ended April 30, 1997 increased by 31%
compared with same period in 1996, primarily due to the increase in trade sales.
Gross profit margin decreased to 45% for the quarter ended April 30, 1997 from
50% for the quarter ended April 30, 1996. The decrease in gross profit margin
for the quarter ended April 30, 1997 resulted from the more heavily weighted mix
of trade and special sales as compared to the prior period. The terms and
conditions of sales in the consumer market cause it to have a higher cost of
sales since consumer sales have higher discounts and promotional allowances than
sales to the school and library market. Gross profit margin for the nine months
ended April 30, 1997 decreased by 5% compared with same period in 1996,
primarily resulting from the more heavily weighted mix of trade and special
sales.
Selling and marketing expenses for the quarter ended April 30, 1997 decreased to
32% of net sales from 38% of net sales for the quarter ended April 30, 1996.
Selling and marketing expenses for the nine months ended April 30, 1997
decreased to 34% of net sales from 37% of net sales for the nine months ended
April 30, 1996. The amount of marketing and selling expenses have increased as a
result of the Company's efforts to expand its internal marketing operations and
higher warehousing and distribution costs due to increased sales. However, as a
percentage of net sales, selling and marketing expenses decreased due primarily
to special sales for which no marketing efforts are needed.
<PAGE>
General and administrative expenses increased by $129,000 to $447,000 for the
quarter ended April 30, 1997 compared with $318,000 for the quarter ended April
30, 1996. For the nine months ended April 30, 1997 general and administrative
expenses increased by $729,000 to $1,623,000 compared with $894,000 for the same
period last year. This increase is largely due to one time charges associated
with the bridge loan financing ($318,000), legal fees, Directors' and Officers'
insurance and new personnel. The establishment of a consumer credit and
collection function also contributed to this increase.
During the third quarter ended April 30, 1997 the Company had operating income
of $6,000 compared with operating income for the same period in 1996 of $1,000.
The Company's operating loss for the nine months ended April 30, 1997 was
$529,000 compared to income of $86,000 for the same period in 1996. The loss is
primarily a result of increased general and administrative expenses as noted
above.
Net interest income was $9,000 for the quarter ended April 30, 1997 compared
with $55,000 interest expense for the quarter ended April 30, 1996. The
extinguishment of net interest expense was due to the repayment of bank and
bridge loans with proceeds from the IPO during the second fiscal quarter of
1997. For the nine months ended April 30, 1997 interest expense increased by
$8,000 to $164,000 compared with $156,000 for the same period last year. The
increase is largely due to higher average borrowings on the Company's line of
credit.
LIQUIDITY AND CAPITAL RESOURCES
The Company has available a $2,700,000 revolving line of credit with People's
Bank. The line of credit restricts the ability of the Company to obtain working
capital in the form of indebtedness other than indebtedness incurred in the
ordinary course of the Company's business, to grant security interest in the
assets of the Company or to pay dividends on the Company's securities. As of
April 30, 1997, the Company has no amounts outstanding under this line.
As of April 30, 1997, the Company had cash and working capital of $1,832,000 and
$7,090,000, respectively, as opposed to cash and working capital of $2,000 and
$1,258,000, respectively, as of April 30, 1996. This increase was due to net
proceeds from the IPO after payment of IPO related expenses and repayment of
bank and bridge loans.
Inventory of finished goods totaled $4,530,000 and $3,266,000 at April 30,1997
and April 30, 1996, respectively. The higher level of inventory is due to an
increase in the number of backlist trade and School and Library titles, as well
as maintaining sufficient levels to meet consumer demand. The increase in
Accounts Receivable ($1,286,000) from the prior year is due to increased sales.
Based on its current operating plan, the Company anticipates that its existing
resources together with cash generated from operations, if any, will be
sufficient to satisfy the Company's contemplated working capital requirements
through approximately July 31, 1998. However,
<PAGE>
there can be no assurance that the Company's working capital will not exceed its
available resources or that these funds will be sufficient to meet the Company's
longer-term cash requirements for operations. Accordingly, either before or
after July 31, 1998, the Company may seek additional funds from borrowings or
through debt or equity financing.
FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created hereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the Company's future cash resources and liquidity and the ability of
the Company to fully exploit a book's sales potential in the school and library
and consumer markets. Although the Company believes that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate, and therefore, there can be no assurance
that the forward-looking statements included in this Form 10-QSB will prove to
be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
PART II. OTHER INFORMATION
All items required hereunder have been omitted because they are inapplicable.
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 MILLBROOK PRESS, INC.
(Registrant)
June 13, 1997 By: /s/ Satish Dua
------------------------------------------
Satish Dua
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Financial Statements as of April 30, 1997 and is
qualified in its entirety by reference to such consolidated financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> APR-30-1997
<CASH> $1,832,000
<SECURITIES> $0
<RECEIVABLES> $3,949,000
<ALLOWANCES> $454,000
<INVENTORY> $7,447,000
<CURRENT-ASSETS> $10,202,000
<PP&E> $262,000
<DEPRECIATION> $0
<TOTAL-ASSETS> $16,576,000
<CURRENT-LIABILITIES> $3,112,000
<BONDS> $0
$0
$0
<COMMON> $17,591,000
<OTHER-SE> $0
<TOTAL-LIABILITY-AND-EQUITY> $16,576,000
<SALES> $9,905,000
<TOTAL-REVENUES> $9,905,000
<CGS> $5,418,000
<TOTAL-COSTS> $5,418,000
<OTHER-EXPENSES> $5,016,000
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $164,000
<INCOME-PRETAX> ($977,000)
<INCOME-TAX> $0
<INCOME-CONTINUING> ($977,000)
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> ($977,000)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
