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 October 31, 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 October 31, 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
October 31, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three months ended
October 31, 1996 and 1997
Balance Sheet as of October 31, 1997
Statement of Stockholder's Equity for the three months ended
October 31, 1997
Statements of Cash Flows for three months ended October 31,
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>
Three Months Ended
October 31
1996 1997
<S> <C> <C>
Net sales $3,266,000 $3,971,000
Cost of sales 1,743,000 2,044,000
Gross profits 1,523,000 1,927,000
---------- ---------
Operating expenses:
Selling and marketing 1,140,000 1,243,000
General and administrative 390,000 433,000
---------- -------
Total operating expenses 1,530,000 1,676,000
---------- ---------
Operating income (loss) (7,000) 251,000
Interest expense 81,000 --
------- --------
Net (loss) income (88,000) 251,000
Preferred dividend accrued (180,000) --
--------- --------
Net (loss) income available to common stockholders ($268,000) $251,000
---------- --------
Net (loss) earnings per share after preferred dividend requirements
(primary and fully diluted) ($0.26) $0.07
Weighted Average Shares 1,026,308 3,523,391
</TABLE>
<PAGE>
THE MILLBROOK PRESS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
October 1996 October 1997
------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) ($88,000) $251,000
Add (deduct) to reconcile net income (loss) to net cash flow:
Depreciation and amortization 322,000 347,000
Changes in accounts receivable (805,000) (916,000)
Changes in inventory (622,000) (212,000)
Changes in prepaid expenses and other (274,000) 358,000
Changes in payables & accrued expenses 732,000 (40,000)
-------- --------
Cash used in operations (735,000) (212,000)
--------- ---------
CASH FLOW USED IN INVESTING ACTIVIES:
Capital expenditures (32,000) (18,000)
Plant costs (403,000) (390,000)
--------- ---------
Cash used in investing activities (435,000) (408,000)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowings under line of credit 1,136,000 331,000
Cash provided by financing activities 1,136,000 331,000
---------- -------
Net decrease in cash (34,000) (289,000)
Cash at beginning of period 134,000 323,000
-------- -------
Cash at end of period $100,000 $34,000
--------- -------
Supplemental disclosure:
Interest expense paid $74,000 $0
-------- --
</TABLE>
<PAGE>
Statement of Stockholders' Equity
Three months ended October 31, 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- ------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ------- ------- -----
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1997 0 $0 3,455,000 $35,000 $17,556,000 ($4,293,000) $13,298,000
Net income 251,000 251,000
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at October 31, 1997 0 0 3,455,000 $35,000 $17,556,000 ($4,042,000) $13,549,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Millbrook Press Inc.
Balance Sheet
October 31, 1997
Cash $34,000
Accounts Receivable, net 3,740,000
Inventory 5,148,000
Prepaid Expense and Other Assets 229,000
Royalty Advances, net 505,000
-------
Total Current Assets 9,656,000
Plant Costs, net 3,239,000
Royalty Advances, net 126,000
Fixed Assets, net 253,000
Goodwill, net 3,007,000
Other Assets 29,000
------
Total Assets $16,310,000
===========
Accounts Payable and Accrued expenses $2,263,000
Notes payable to bank 331,000
Royalties Payable 167,000
-------
Current Liabilities 2,761,000
Capital Stock 35,000
Additonal Paid in Capital 17,556,000
Accumulated Deficit (4,042,000)
-----------
Total Equity 13,549,000
----------
Total Liabilities &
Equity $16,310,000
===========
<PAGE>
THE MILLBROOK PRESS INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 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 October 31,
1997 interim period is 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, 1997.
The Company completed its initial public offering (IPO) on December 23, 1996
whereby the Company issued and sold 1,955,000 shares of Common Stock and
received net proceeds of approximately $7,093,000. In addition, all the
Company's outstanding preferred stock, including accrued preferred dividends,
was 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 IPO, 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
Option Plan. All stock options granted by the Company expire seven years after
the grant date. Stock options generally vest in 20% increments in each of the
five years after the date of grant. However, 50% of all non-vested stock options
granted prior to the initial public offering vest on December 17, 1997 and the
balance of such unvested options vest on December 17, 1998.
<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 800 hardcover
and 340 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 products, 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 first quarter ended October 31, 1997 were $4.0 million
compared to $3.3 million for the same period last year. Increased sales resulted
from significant increases in trade sales, S&L sales to Baker & Taylor for their
telemarketing program and a special sale of 80,000 units to the Scholastic Book
Club.
Gross profit margin increased to 49% for the quarter ended October 31, 1997 from
47% for the quarter ended October 31, 1996. The increase in gross profit margin
for the quarter ended October 31, 1997 resulted from lower paper, printing and
binding cost as a percentage of sales compared with the same period in 1996.
Selling and marketing expenses for the quarter ended October 31, 1997 decreased
to 31% of net sales from 35% of net sales for the quarter ended October 31,
1996. The amount of marketing and selling expenses have increased as a result of
the Company's efforts to expand its internal marketing operations. However, as a
percentage of net sales, selling and marketing expenses decreased due primarily
to special sales for which no marketing efforts are needed and lower
distribution cost because of a new contract with the distribution company.
General and administrative expenses increased by $43,000 to $433,000 for the
quarter ended October 31, 1997 compared with $390,000 for the quarter ended
October 31, 1996. This increase is largely due to higher salaries and related
payroll benefits because of additional personnel.
<PAGE>
During the first quarter ended October 31, 1997 the Company had operating income
of $251,000 compared with operating loss for the same period in 1996 of $7,000.
The increase in operating income is due to increased sales and lower cost of
sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company has available a $4,000,000 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
October 31, 1997, the Company had $331,000 outstanding under this line.
Inventory of finished goods totaled $5,148,000 and $4,099,000 at October 31,1997
and October 31, 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 ($851,000) 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, 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.
SUBSEQUENT EVENT
On December 5, 1997 the Company closed an Asset Purchase Agreement whereby the
Company purchased certain assets of Twenty-First Century Books, a division of
Henry Holt & Co., Inc. ("Holt"). The purchase was effective as of December 1,
1997. Under this agreement, the Company paid Holt $2,300,000 for the assets
which were valued at $2,504,000 as reflected on the Henry Holt & Co.,
Inc.--Twenty-First Century Books June 30, 1997 Pro Forma Balance Sheet. The
purchase price is subject to downward adjustments based on a joint audit of the
purchased assets by the Company and Holt. Accordingly, the Company paid Holt
$2,000,000 at closing and the remaining $300,000 is being held in escrow pending
completion of the joint audit. The Company financed the acquisition through a
loan under its line of credit with People's Bank.
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,
<PAGE>
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)
December 12, 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 October 31, 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-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 34,000
<SECURITIES> 0
<RECEIVABLES> $4,277,000
<ALLOWANCES> $537,000
<INVENTORY> $5,148,000
<CURRENT-ASSETS> $9,656,000
<PP&E> $229,000
<DEPRECIATION> $0
<TOTAL-ASSETS> $16,310,000
<CURRENT-LIABILITIES> $2,761,000
<BONDS> $0
<COMMON> $17,591,000
$0
$0
<OTHER-SE> $0
<TOTAL-LIABILITY-AND-EQUITY> $16,310,000
<SALES> $3,971,000
<TOTAL-REVENUES> $3,971,000
<CGS> $2,044,000
<TOTAL-COSTS> $2,044,000
<OTHER-EXPENSES> $1,676,000
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $0
<INCOME-PRETAX> $251,000
<INCOME-TAX> $0
<INCOME-CONTINUING> $251,000
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $251,000
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
