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 JANUARY 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 / / No /X/
APPLICABLE ONLY TO CORPORATE ISSUES
State the number of share outstanding of each of the issuer's classes of
common equity, as of January 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
JANUARY 31, 1997
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three and six
month periods ended January 31, 1997 and 1996 3
Balance Sheet as of January 31, 1997 4
Statement of Stockholder's Equity for the three and six
month periods ended January 31, 1997 5
Statements of Cash Flows for the six months ended
January 31, 1997 and 1996 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION 9
<PAGE>
THE MILLBROOK PRESS INC.
Statements of Operations
<TABLE>
<CAPTION>
Six months ended Three months ended
January 31 January 31
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 4,975,000 6,215,000 2,269,000 2,949,000
Cost of Sales 2,526,000 3,378,000 1,153,000 1,636,000
--------- --------- --------- ---------
Gross Profits 2,449,000 2,837,000 1,116,000 1,313,000
Operating expenses:
Selling and marketing 1,788,000 2,197,000 851,000 1,058,000
General and administrative 576,000 1,176,000 283,000 785,000
--------- --------- --------- ---------
Total operating expenses 2,364,000 3,373,000 1,134,000 1,843,000
Operating income (loss) 85,000 (536,000) (18,000) (530,000)
Interest Expense 101,000 173,000 51,000 92,000
Net Income (loss) (16,000) (708,000) (69,000) (620,000)
Preferred dividend accrued (322,000) (284,000) (161,000) (104,000)
--------- --------- --------- ---------
Net loss available to common stockholders (338,000) (992,000) (230,000) (724,000)
--------- --------- --------- ---------
Net loss per share after preferred dividend requirements
(primary and fully diluted) ($ 0.33) ($ 0.64) ($ 0.22) ($ 0.35)
</TABLE>
<PAGE>
The Millbrook Press Inc.
Balance Sheet
January 31, 1997
Cash $ 1,763,000
Accounts Receivable $ 2,817,000
Inventory $ 4,179,000
Prepaid Expense and Other Assets $ 214,000
Royalty Advances, net $ 336,000
------------
Total Current Assets $ 9,309,000
------------
Plant costs, net $ 2,849,000
Royalty Advances, net $ 60,000
Fixed Assets, net $ 269,000
Goodwill, net $ 3,150,000
Other Assets $ 38,000
------------
Total Assets $ 15,675,000
------------
Accounts payable and accrued expenses $ 1,785,000
Royalties payable $ 225,000
------------
Current Liabilities $ 2,010,000
Note Payable $ 107,000
------------
Total Liabilities $ 2,117,000
------------
Capital Stock $ 35,000
Additonal Paid in Capital $ 17,665,000
Accumulated Deficit ($ 4,142,000)
------------
Total Equity $ 13,558,000
------------
Total Liabilities &
Equity $ 15,675,000
------------
<PAGE>
STATEMENT OF STOCKHOLDERS' EQUITY
THREE AND SIX MONTH PERIODS ENDED JANUARY 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, 1996 4,700 $6,190,000 1,026,308 $10,263 $3,991,000 ($3,150,000) $7,041,263
- -----------------------------------------------------------------------------------------------------------------------------------
Preferred stock dividend $180,000 ($180,000)
Issuance of common stock
warrants $23,000 $23,000
Net Loss ($88,000) ($88,000)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT OCTOBER 31, 1996 4,700 $6,370,000 1,026,308 $10,263 $4,014,000 ($3,418,000) $6,976,263
- -----------------------------------------------------------------------------------------------------------------------------------
Preferred stock dividend $104,000 ($104,000) $0
Conversion of Perferred Stock (4,700) ($6,474,000) 473,692 $4,737 $6,469,000 ($263)
Issuance of common stock 1,955,000 $19,550 $7,182,450 $7,202,000
Net Loss ($620,000) ($620,000)
---------- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 31, 1997 0 $0 3,455,000 $34,550 $17,665,450 ($4,142,000) $13,558,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE MILLBROOK PRESS INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JANUARY 1997 JANUARY 1996
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (708,000) (16,000)
Add (deduct) to reconcile net income to net cash flow:
Depreciation and amortization 567,000 540,000
Changes in accounts receivable (732,000) (681,000)
Changes in inventory (703,000) (659,000)
Changes in prepaid expenses and other 122,000 322,000
Changes in payables & accrued expenses (281,000) 516,000
---------- ----------
CASH FLOW USED IN OPERATIONS: (1,735,000) 22,000
CASH FLOW USED IN INVESTING ACTIVIES:
Capital expenditures (34,000) (15,000)
Plant costs (692,000) (821,000)
---------- ----------
Cash used in investing activities (726,000) (836,000)
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit (3,135,000) 360,000
Proceeds from sale of capital stock 7,225,000 0
---------- ----------
Cash provided by financing activities 4,090,000 360,000
NET INCREASE IN CASH 1,629,000 (454,000)
CASH AT BEGINNING OF PERIOD 134,000 538,000
---------- ----------
CASH AT END OF PERIOD 1,763,000 84,000
---------- ----------
SUPPLEMENTAL DISCLOSURE:
INTEREST EXPENSE PAID 41,000 50,000
---------- ----------
</TABLE>
<PAGE>
THE MILLBROOK PRESS INC.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996
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 January 31,
1996 and January 31, 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 $7,200,000. 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. In the event the Company has an initial public offering, all non-vested
options on the effective date of the initial public offering will vest 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 market.
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 it's 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 and accordingly
the Company will need to deduct a higher reserve for returns from its gross
sales. And 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.
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. 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 second quarter ended January 31, 1997 increased from
$2,269,000 to $2,949,000, or 30% compared with the same period in 1996.
Increased sales resulted from significant increases in trade and special sales
due to large number of backlist titles as well as significant increase in number
of accounts. Net sales in the six months ended January 31, 1997 increased by 25%
compared with same period in 1996, primarily driven by the increase in trade
sales.
Gross margin decreased to 45% for the quarter ended January 31, 1997 from 49%
for the quarter ended January 31, 1996. The decrease in gross margin for the
quarter ended January 31, 1997 resulted from the more heavily weighted mix of
trade and special sales as compared to 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
school and library market. Gross margin for the six months ended January 31,
1997 decreased by 3% compared with same period in 1996, primarily resulting from
the more heavily trade and special sales.
Selling and marketing expenses for the quarter end January 31, 1997 decreased to
35% of net sales from 36% for the quarter ended January 31, 1996. These expenses
for the six months ended January 31, 1997 were decreased by 2% compared with
same period in 1996. The amount of selling and marketing expenses have increased
as a result of the Company's efforts to expand its internal marketing operations
and due to increased sales.
General and administrative expenses increased by $502,000 to $785,000 for the
quarter ended January 31, 1997 compared with $283,000 for the quarter ended
January 31, 1996. For the six
<PAGE>
months ended January 31, 1997 general and administrative expenses increased by
$600,000 to $1,176,000 compared with $576,000 for the same period last year.
This increase is largely due to one time charges associated with the bridge loan
financing ($315,000). Additionally, legal fees and D&O insurance, new personnel,
and the establishment of a consumer credit and collection capability also
contributed to this increase.
During the second quarter ended January 31, 1997 the Company experienced an
operating loss of $530,000 compared with an operating loss for the same period
in 1996 of $18,000. Operating loss for the six months ended January 31, 1997 was
$536,000 compared to income of $85,000 for the same period in 1996. The
increased loss is primarily a result of increased general and administrative
expenses as noted above.
Net interest expense increased by $41,000 to $92,000 for the quarter ended
January 31, 1997 compared with $51,000 for the quarter ended January 31, 1996.
For the six months ended January 31, 1997 interest expense increased by $72,000
to $173,000 compared with $101,000 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, of which $107,000 was outstanding under this facility at January 31, 1997.
Such amount was subsequently paid off on February 10, 1997. The balance of loan
from People's Bank was paid off from the proceeds received from the Initial
Public Offering which was completed on December 23, 1996. 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 January 31, 1997, the Company had cash and working capital of $1,763,000
and $7,192,000, respectively, as opposed to cash and working capital of $84,000
and $1,400,000, respectively, as of January 31, 1996. This increase was due to
net proceeds from Initial Public Offering after payment of IPO related expenses
and repayment of bank and bridge loans.
Inventory of finished goods totaled $4,179,000 and $3,317,000 at January 31,1997
and January 31, 1996, respectively. The higher level of inventory is due to
increased number of backlist trade and S&L titles as well as maintaining
sufficient levels to meet consumer demand. The increase in Accounts Receivable
($732,000) from prior year is due to increased sales.
Based on its current operating plan, the Company anticipates that the proceeds
of the offering, together with existing resources and 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
<PAGE>
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)
March 12, 1997 By: /s/ Satish Dua
--------------------------------------
Satish Dua
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Company's
Inc. Consolidated Financial Statements as of January 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-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 1,763,000
<SECURITIES> 0
<RECEIVABLES> 3,251,000
<ALLOWANCES> 434,000
<INVENTORY> 7,028,000
<CURRENT-ASSETS> 9,309,000
<PP&E> 269,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,675,000
<CURRENT-LIABILITIES> 2,117,000
<BONDS> 0
17,700,000
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,675,000
<SALES> 6,215,000
<TOTAL-REVENUES> 6,215,000
<CGS> 3,378,000
<TOTAL-COSTS> 3,378,000
<OTHER-EXPENSES> 3,657,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 173,000
<INCOME-PRETAX> (992,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (992,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (992,000)
<EPS-PRIMARY> (0.64)
<EPS-DILUTED> (0.64)
</TABLE>
