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, 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 January 31, 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
JANUARY 31, 1998
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three and six months ended
January 31, 1998 and 1997
Balance Sheet as of January 31, 1998
Statement of Stockholder's Equity for the three and six months
ended January 31, 1998 Statements of Cash Flows for six months
ended January 31, 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
<PAGE>
THE MILLBROOK PRESS INC.
Statements of Operations
<TABLE>
<CAPTION>
Six months ended Three months ended
January 31 January 31
1998 1997 1998 1997
----- ----- ----- ----
<S> <C> <C> <C> <C>
Net Sales 7,212,000 6,215,000 3,240,000 2,949,000
Cost of Sales 3,689,000 3,378,000 1,644,000 1,636,000
---------- ---------- ---------- ----------
Gross Profits 3,523,000 2,837,000 1,596,000 1,313,000
Operating expenses:
Selling and marketing 2,373,000 2,197,000 1,129,000 1,058,000
General and administrative 860,000 1,176,000 427,000 785,000
---------- ---------- ---------- ----------
Total operating expenses 3,233,000 3,373,000 1,556,000 1,843,000
Operating income (loss) 290,000 (536,000) 40,000 (530,000)
Interest Expense 38,000 173,000 38,000 92,000
Net income (loss) 252,000 (708,000) 2,000 (620,000)
Preferred dividend accrued 0 (284,000) 0 (104,000)
---------- ---------- ---------- ----------
Net income (loss) available to common stockholders 252,000 (992,000) 2,000 (724,000)
---------- ---------- ---------- ----------
Net income(loss) per share after preferred dividend requirements
(Basic and Diluted) $ 0.07 ($ 0.64) $ 0.00 ($ 0.35)
</TABLE>
<PAGE>
Millbrook Press
Balance Sheet
January 31, 1998
Cash $ 19,000
Accounts Receivable, net 3,996,000
Inventory 7,418,000
Prepaid Expense and Other Assets 580,000
Royalty Advances, net 910,000
------------
Total Current Assets 12,923,000
Plant Costs, net 4,493,000
Royalty Advances, net 100,000
Fixed Assets, net 256,000
Goodwill, net 2,960,000
Other Assets 21,000
Total Assets $ 20,753,000
============
Accounts Payable and Accrued expenses $ 3,560,000
Notes payable to bank 3,392,000
Royalties Payable 250,000
------------
Current Liabilities 7,202,000
Capital Stock 35,000
Additional Paid in Capital 17,556,000
Accumulated Deficit (4,040,000)
------------
Total Equity 13,551,000
------------
Total Liabilities &
Equity $ 20,753,000
============
<PAGE>
<TABLE>
<CAPTION>
Statement of Stockholders' Equity
Three and six month ended January 31, 1998
Additional
Preferred Stock Common Stock 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
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE MILLBROOK PRESS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
January 1998 January 1997
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) 252,000 (708,000)
Add (deduct) to reconcile net income to net cash flow:
Depreciation and amortization 722,000 567,000
Changes in assets & liabilities (net of effect of acquisition):
Accounts receivable (1,171,000) (732,000)
Inventory (1,724,000) (703,000)
Prepaid expenses and other (11,000) 122,000
Payables & accrued expenses 1,342,000 (281,000)
---------- ---------
CASH FLOW USED IN OPERATIONS: (590,000) (1,735,000)
CASH FLOW USED IN INVESTING ACTIVITIES:
Capital expenditures (41,000) (34,000)
Plant costs (1,052,000) (692,000)
Acquisition of business (2,013,000) 0
---------- ---------
Cash used in investing activities (3,106,000) (726,000)
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings under lines of credit 3,392,000 (3,135,000)
Proceeds from sale of capital stock 0 7,225,000
---------- ---------
Cash provided by financing activities 3,392,000 4,090,000
Net increase (decrease) in cash (304,000) 1,629,000
Cash at beginning of period 323,000 134,000
---------- ---------
Cash at end of period 19,000 1,763,000
---------- ---------
Supplemental disclosure:
Interest Expense Paid 38,000 41,000
---------- ---------
</TABLE>
<PAGE>
THE MILLBROOK PRESS INC.
NOTES TO FINANCIAL STATEMENTS
January 31, 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 periods presented have been made. The results of the January 31,
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 ten years after the grant date. Stock options generally vest
50% one year from the date of grant and 25% 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) No. 128 "Earning Per Share". SFAS No. 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 six- 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
six-month periods.
<TABLE>
<CAPTION>
For the six months ended For the three months ended
January 31, 1998 January 31, 1998
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income (Loss) ....................... $ 252,000 $ (992,000) $ 2,000 $ (724,000)
Shares
Basic Shares ............................ 3,455,000 1,541,085 3,455,000 2,055,862
Effect of Dilutive Stock Options ........ 43,835 -- 15,342 --
Diluted Shares .......................... 3,498,835 1,541,085 3,470,342 2,055,862
</TABLE>
<TABLE>
<CAPTION>
For the six months ended For the three months ended
January 31, 1998 January 31, 1998
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic and Diluted EPS $.07 $(.64) $0.00 $(.35)
</TABLE>
Acquistion
On December 5, 1997 the Company completed an acquisition to purchase 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 the
agreement, the Company paid Holt $2,013,000 for the assets.
Notes Payable to Bank
The Company has available a $4,000,000 revolving line of credit with People's
Bank. As of January 31, 1998, the Company had $3,392,000 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.
<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 second quarter ended January 31, 1998 were $3.2 million
compared to $2.9 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 a special sale of 40,000 units to Reading's Fun, a display sales
company, and a sale of 135,000 units to Scholastic Book Fairs. Net sales for the
six months ended January 31, 1998 increased by 16% compared with the same period
in 1997, primarily due to the increase in S& L sales and special sales.
Gross profit margin increased to 49% for the quarter ended January 31, 1998 from
45% for the quarter ended January 31, 1997. The increase in gross profit margin
for the quarter ended January 31, 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 six months ended January 31, 1998 increased by 3% compared
with same period in 1997.
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 January 31, 1998 decreased to 35% of net sales from 36% of net
sales for the quarter ended January 31, 1997; these expenses for the six months
ended January 31, 1998 decreased 2% compared with the same period in 1997. This
decrease is due to higher sales and lower warehousing cost because of a new
contract.
General and administrative expenses decreased to $427,000 for the quarter ended
January 31, 1998 compared with $785,000 for the quarter ended January 31, 1997.
This decrease is largely due to IPO related expenses in December, 1996. For the
six months ended January 31, 1998
<PAGE>
general and administrative expenses decreased by 27% due to IPO related expenses
in the second quarter ended January 31, 1997.
During the quarter ended January 31, 1998 the Company had operating income of
$40,000 compared with an operating loss for the same period in 1997 of $530,000.
The increase in operating income is due to increased sales, lower cost of sales
and lower general and administrative expenses. For the six months ended January
31, 1998 the operating income was $290,000 compared to a $536,000 loss for the
same period in 1997.
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
January 31, 1998, the Company had $3,392,000 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 January 31, 1998, the Company had cash and working capital of $19,000 and
$5,721,000, respectively, as opposed to cash and working capital of $1,763,000
and $7,192,000, respectively, as of Janury 31, 1997. This decrease was due to
the acquistion of Twenty-First Century Books.
Inventory of finished goods totaled $7,418,000 and $4,179,000 at January 31,1998
and January 31, 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 $1,171,000 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.
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
<PAGE>
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 13, 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 January 31, 1998 and is
qualified in its entirety by reference to such consolidated financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JAN-31-1998
<CASH> $19,000
<SECURITIES> $0
<RECEIVABLES> $4,557,000
<ALLOWANCES> $561,000
<INVENTORY> $7,418,000
<CURRENT-ASSETS> $12,923,000
<PP&E> $256,000
<DEPRECIATION> $0
<TOTAL-ASSETS> $20,753,000
<CURRENT-LIABILITIES> $7,202,000
<BONDS> $0
<COMMON> $17,591,000
$0
$0
<OTHER-SE> $0
<TOTAL-LIABILITY-AND-EQUITY> $13,551,000
<SALES> $7,212,000
<TOTAL-REVENUES> $7,212,000
<CGS> $3,689,000
<TOTAL-COSTS> $3,689,000
<OTHER-EXPENSES> $0
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $38,000
<INCOME-PRETAX> $252,000
<INCOME-TAX> $0
<INCOME-CONTINUING> $252,000
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $252,000
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
