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, 1998.
/ / 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 share outstanding of each of the issuer's classes of
common equity, as of April 30, 1998
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, 1998
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three and nine months ended April 30,
1998 and 1997
Balance Sheet as of April 30, 1998
Statement of Stockholder's Equity for the three and nine months ended
April 30, 1998
Statements of Cash Flows for nine months ended April 30, 1998 and 1997
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8 - K
<PAGE>
THE MILLBROOK PRESS INC.
Statements of Operations
<TABLE>
<CAPTION>
Nine months ended Three months ended
April 30 April 30
1998 1997 1998 1997
----- ----- ----- ----
<S> <C> <C> <C> <C>
Net sales $11,704,000 $ 9,905,000 $ 4,492,000 $3,690,000
Cost of sales 5,901,000 5,418,000 2,212,000 2,040,000
----------- ----------- ----------- -----------
Gross profit 5,803,000 4,487,000 2,280,000 1,650,000
----------- ----------- ----------- -----------
Operating expenses:
Selling and marketing 3,802,000 3,393,000 1,429,000 1,197,000
General and administrative 1,319,000 1,623,000 459,000 447,000
----------- ----------- ----------- -----------
Total operating expenses 5,121,000 5,016,000 1,888,000 1,644,000
----------- ----------- ----------- -----------
Operating income (loss) 682,000 (529,000) 392,000 6,000
Interest expense/(income) 119,000 164,000 81,000 (9,000)
----------- ----------- ----------- -----------
Net (loss) income 563,000 (693,000) 311,000 15,000
Preferred dividend accrued 0 (284,000) $ 0 0
----------- ----------- ----------- -----------
Net (loss) income available to common stockholders $ 563,000 ($ 977,000) $ 311,000 $ 15,000
----------- ----------- ----------- -----------
Net (loss) earnings per share after preferred dividend requirements
(basic and diluted) $ 0.16 ($ 0.63) $ 0.09 $ 0.00
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
Millbrook Press
Balance Sheet
April 30, 1998
Assets
Cash $ 97,000
Accounts Receivable, net 5,251,000
Inventory 6,410,000
Prepaid Expense and Other Assets 288,000
Royalty Advances, net 1,003,000
------------
Total Current Assets 13,049,000
Plant Costs, net 4,304,000
Royalty Advances, net 200,000
Fixed Assets, net 245,000
Goodwill, net 2,913,000
Other Assets 5,000
------------
Total Assets $ 20,716,000
============
Accounts Payable and Accrued Expenses $ 2,359,000
Notes Payable to Bank $ 4,395,000
Royalties Payable 100,000
------------
Current Liabilities 6,854,000
Shareholders Equity:
Capital Stock 35,000
Additonal Paid in Capital 17,556,000
Accumulated Deficit (3,729,000)
------------
Total Equity 13,862,000
------------
Total Liabilities & Stockholder's
Equity $ 20,716,000
============
<PAGE>
Statement of Stockholders' Equity
Three and nine month ended April 30, 1998
<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 ($4,292,000) $13,299,000
Net income 250,000 250,000
Balance at October 31, 1997 0 0 3,455,000 $35,000 $17,556,000 ($4,042,000) $13,549,000
Net income 2,000 2,000
Balance at January 31, 1998 0 0 3,455,000 $35,000 $17,556,000 ($4,040,000) $13,551,000
Net income 311,000 311,000
Balance at April 30, 1998 0 0 3,455,000 $35,000 $17,556,000 ($3,729,000) $13,862,000
</TABLE>
<PAGE>
THE MILLBROOK PRESS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
April 1998 April 1997
---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 563,000 ($ 693,000)
Add (deduct) to reconcile net income to net cash flow:
Depreciation and amortization 1,153,000 881,000
Changes in assets & liabilities (net of effect of acquisition):
Accounts receivable (2,425,000) (1,411,000)
Inventory (717,000) (1,053,000)
Prepaid expenses and other 101,000 328,000
Payables & accrued expenses (13,000) 822,000
----------- -----------
CASH FLOW USED IN OPERATIONS: (1,338,000) (1,126,000)
----------- -----------
CASH FLOW USED IN INVESTING ACTIVITIES:
Capital expenditures (50,000) (49,000)
Plant costs (1,220,000) (1,001,000)
Acquisition of business (2,013,000) 0
----------- -----------
Cash used in investing activities (3,283,000) (1,050,000)
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings under lines of credit 4,395,000 (3,242,000)
Proceeds from sale of capital stock 0 7,116,000
----------- -----------
Cash provided by financing activities 4,395,000 3,874,000
----------- -----------
Net increase (decrease) in cash (226,000) 1,698,000
Cash at beginning of period 323,000 134,000
----------- -----------
Cash at end of period 97,000 1,832,000
----------- -----------
Supplemental disclosure:
Interest Expense Paid 119,000 (9,000)
</TABLE>
<PAGE>
THE MILLBROOK PRESS INC.
NOTES TO FINANCIAL STATEMENTS
April 30, 1998
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, 1998
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.
Initial Public Offering
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 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.
Stock Option Plan
The Company has reserved 675,000 shares of common stock under its non-qualified
1994 Stock Option Plan ("Option Plan") which provides that the Stock Option and
Compensation Committee of the Board of Directors, may grant stock options to
eligible employees, officers, directors 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
generally expire seven years after the grant date. Stock options generally vest
50% one year from the date of grant and 25% in each of the next two years from
the date of grant. However, 50% of all non-vested stock options granted prior to
the IPO vested on December 17, 1997 and the balance of such unvested options
vest on December 17, 1998.
<PAGE>
Earning Per Share
In December 1997, the company adopted Statement of Financial Accounting Standard
(SFAS 128) "Earning Per Share". SFAS 128 presents earning per share on a Basic
and Diluted basis. The computation of Basic earnings per share is based on
income available to common stockholders and the weighted average number of
common shares outstanding during the three - and nine- month periods. Diluted
earnings per share reflects the potential dilution that could occur if dilutive
stock options were exercised resulting in the issuance of common stock that then
shared in the earnings of the Company. The following table details the
computation of Basic and Diluted earnings per share for the three - and
nine-month periods.
<TABLE>
<CAPTION>
For the nine months ended For the three months ended
April 30 April 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income (Loss) $ 563,000 $ (977,000) $ 311,000 $ 15,000
SHARES
Basic Shares 3,455,000 1,541,085 3,455,000 2,055,862
Effect of Dilutive Stock Options 131,550 -- -- --
Diluted Shares 3,586,550 1,541,085 3,455,000 2,055,862
</TABLE>
<TABLE>
<CAPTION>
For the nine months ended For the three months ended
April 30 April 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic and Diluted EPS $.16 $(.63) $0.09 $0.00
</TABLE>
Notes Payable to Bank
As of April 30, 1998, the Company had available a $4,500,000 revolving line of
credit with People's Bank and the Company had $4,395,000 outstanding under this
line. The reason for the increase in the debt is the acquisition of 21st Century
Books and increased working capital needs. As of June 10, 1998, the revolving
line of credit with People's Bank was increased to $7,500,000.
<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 875 hardcover
and 340 paperback books under Millbrook, 21st Century Books 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 third quarter ended April 30, 1998 were $4.5 million compared
to $3.7 million for the same period last year. Increased sales resulted from
significant increases in S&L sales due to the acquisition of 21st Century Books
and Trade sales. Net sales for the nine months ended April 30, 1998 increased by
18% compared with the same period in 1997, primarily due to the increase in S& L
sales and trade sales.
Gross profit margin increased to 51% for the quarter ended April 30, 1998 from
45% for the quarter ended April 30, 1997. The increase in gross profit margin
for the quarter ended April 30, 1998 resulted from lower paper, printing and
binding cost as a percentage of sales compared with the same period in 1997.
Gross margin for the nine months ended April 30, 1998 increased by 5% compared
with same period in 1997 primarily due to lower paper, printing and binding
cost.
Although selling and marketing expenses have increased due to the Company's goal
of selling to all channels effectively, selling and marketing expenses for the
quarter ended April 30, 1998 were 32% of net sales which is the same percentage
of net sales as the three months ended April 30, 1997. Selling and marketing
expenses for the nine months ended April 30, 1998 decreased 2% compared with the
same period in 1997. This decrease is due to higher sales and lower marketing
costs.
General and administrative expenses increased to $459,000 for the quarter ended
April 30, 1998 compared with $447,000 for the quarter ended April 30, 1997. For
the nine months ended April
<PAGE>
30, 1998 general and administrative expenses decreased by 19% due to IPO related
expenses in the third quarter ended April 30, 1997.
During the quarter ended April 30, 1998 the Company had operating income of
$392,000 compared with an operating income of $6,000 for the same period in
1997. The increase in operating income is due to increased sales, lower cost of
sales and lower general and administrative expenses. For the nine months ended
April 30, 1998 the operating income was $682,000 compared to a $529,000 loss for
the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1998, the Company had available a $4,500,000 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 June 10, 1998, the revolving line of credit with
People's Bank was increased to $7,500,000.
As of April 30, 1998, the Company had $4,395,000 outstanding under this line.
The reason for the increase in the debt is the acquisition of 21st Century Books
and to meet working capital needs.
As of April 30, 1998, the Company had cash and working capital of $97,000 and
$6,195,000, respectively, as opposed to cash and working capital of $1,832,000
and $7,090,000, respectively, as of April 30, 1997. This decrease was due to the
acquistion of Twenty-First Century Books.
Inventory of finished goods totaled $6,410,000 and $4,530,000 at April 30,1998
and April 30, 1997 respectively. The higher level of inventory is due to an
increase in the number of backlist trade and school and library titles. The
acquisition of 21st Century Books also contributed to the increase in inventory.
The increase in Accounts Receivable of $2,425,000 from the prior year is due to
increased sales.
Based on its current operating plan, the Company believes that its existing
resources together with cash generated from operations and cash available
through its credit line will be sufficient to satisfy the Company's contemplated
working capital requirements through approximately July 31, 1999. 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, 1999, 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.
<PAGE>
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
Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit 27--Financial Data Schedule
(b) Form 8-K--None
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 15, 1998 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, 1998 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> APR-30-1998
<CASH> 97,000
<SECURITIES> 0
<RECEIVABLES> 5,854,000
<ALLOWANCES> 603,000
<INVENTORY> 6,410,000
<CURRENT-ASSETS> 13,049,000
<PP&E> 245,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,716,000
<CURRENT-LIABILITIES> 6,854,000
<BONDS> 0
<COMMON> 17,591,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,862,000
<SALES> 11,704,000
<TOTAL-REVENUES> 11,704,000
<CGS> 5,901,000
<TOTAL-COSTS> 5,901,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,000
<INCOME-PRETAX> 563,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 563,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 563,000
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
