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, 1999.
--------------
( ) 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, 1999
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, 1999
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three and nine months ended
April 30, 1999 and 1998
Balance Sheet as of April 30, 1999
Statements of Cash Flows for nine months ended April 30, 1999
and 1998
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 5. 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
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $13,512,000 $11,704,000 $ 4,186,000 $ 4,492,000
Cost of Sales 6,980,000 5,901,000 2,069,000 2,212,000
----------- ----------- ----------- ----------
Gross Profits 6,532,000 5,803,000 2,117,000 2,280,000
Operating Expenses:
Selling and Marketing 4,603,000 3,802,000 1,646,000 1,429,000
General and Administrative 1,481,000 1,319,000 544,000 459,000
----------- ----------- ----------- ----------
Total Operating Expenses 6,084,000 5,121,000 2,190,000 1,888,000
----------- ----------- ----------- ----------
Operating Income (Loss) 448,000 682,000 (73,000) 392,000
Interest Expense 293,000 119,000 93,000 81,000
----------- ----------- ----------- ----------
Net Income (Loss) $ 155,000 $ 563,000 ($ 166,000) $ 311,000
----------- ----------- ----------- ----------
Earnings (Loss) per share
(basic and diluted) $ 0.04 $ 0.16 $ (0.05) $ 0.09
----------- ----------- ----------- ----------
Weighted average shares outstanding 3,455,000 3,455,000 3,455,000 3,455,000
</TABLE>
<PAGE>
THE MILLBROOK PRESS INC.
BALANCE SHEET
APRIL 30, 1999
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash $ 338,000
Accounts Receivable, net 5,736,000
Inventory 7,158,000
Prepaid Expense and Other Assets 163,000
------------
TOTAL CURRENT ASSETS 13,395,000
Plant Costs, net 4,252,000
Royalty Advances, net 1,793,000
Fixed Assets, net 250,000
Goodwill, net 3,193,000
------------
TOTAL ASSETS $ 22,883,000
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts Payable and Accrued Expenses $ 3,051,000
Notes Payable to Bank 5,669,000
Royalties Payable 63,000
------------
TOTAL CURRENT LIABILITIES 8,783,000
STOCKHOLDERS' EQUITY
Capital Stock 35,000
Additional Paid in Capital 17,556,000
Accumulated Deficit (3,491,000)
------------
TOTAL STOCKHOLDERS' EQUITY 14,100,000
------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 22,883,000
------------
</TABLE>
<PAGE>
THE MILLBROOK PRESS INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
APRIL 30, 1999 APRIL 30, 1998
-------------- --------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 155,000 $ 563,000
Add (deduct) to reconcile net income to net cash flow:
Depreciation and amortization 1,388,000 1,153,000
Changes in assets & liabilities (net of effect of acquisition):
Accounts receivable (791,000) (2,425,000)
Inventory (449,000) (717,000)
Prepaid expenses and other 12,000 101,000
Payables & accrued expenses (541,000) (13,000)
----------- -----------
CASH FLOW USED IN OPERATIONS (226,000) (1,338,000)
----------- -----------
CASH FLOW USED IN INVESTING ACTIVITIES:
Capital expenditures (90,000) (50,000)
Plant costs (1,174,000) (1,220,000)
Acquisition of Twenty First Century -- (2,013,000)
----------- -----------
Cash used in investing activities (1,264,000) (3,283,000)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings under lines of credit 1,794,000 4,395,000
----------- -----------
Cash provided by financing activities 1,794,000 4,395,000
----------- -----------
NET INCREASE (DECREASE) IN CASH 304,000 (226,000)
CASH AT BEGINNING OF PERIOD 34,000 323,000
----------- -----------
CASH AT END OF PERIOD $ 338,000 $ 97,000
----------- -----------
SUPPLEMENTAL DISCLOSURE:
INTEREST PAID $ 293,000 $ 119,000
----------- -----------
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
April 30, 1999
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 April 30,
1999 interim period 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, 1998.
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% in 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 December 23, 1996 vested on December 17, 1997 and the balance of such
unvested options vested on December 17, 1998.
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 month period. 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.
<PAGE>
<TABLE>
<CAPTION>
For the nine months ended For the three months ended
April 30, April 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income (Loss) $ 155,000 $ 563,000 ($ 166,000) $ 311,000
SHARES
Basic Shares 3,455,000 3,455,000 3,455,000 3,455,000
Effect of Dilutive Stock Options -- 131,550 -- --
Diluted Shares 3,455,000 3,586,550 3,455,000 3,455,000
Basic & Diluted EPS $ 0.04 $ 0.16 ($ 0.05) $ 0.09
</TABLE>
NOTES PAYABLE TO BANK
As of April 30, 1999, the Company had available a $7,500,000 revolving line of
credit with People's Bank and the Company had $5,669,000 outstanding under this
line.
TAXES
No federal income taxes have been provided for the nine months ended April 30,
1999 and 1998 due to the Company's net operating loss carryforwards.
The Company anticipates fully utilizing all of its remaining net operating loss
carryforwards during the current fiscal year.
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 school and library market and the consumer
market. Since its inception, the Company has published more than 1100 hardcover
and 500 paperback books under its Millbrook, Copper Beech, Twenty-First Century
and Magic Attic Press 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
<PAGE>
hardcover books while being simultaneously distributed to the consumer market as
either hardcover or paperback books. The majority of Copper Beech books are
published for both the consumer and library markets. Twenty-First Century Books
titles are published primarily for the library market. As a result, the Company
is better able to fully exploit a book's sales potentital. 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 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's current and future net sales and operating
results will reflect these seasonal factors.
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 for credit. The rate of return also can have a
significant impact on quarterly results since certain wholesalers returned large
quantities of products at one time irrespective of marketplace demand for such
products, rather than spreading out the returns over the course of the year. The
Company computes net sales by deducting actual returns as well as additional
reserves as required 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.
<PAGE>
RESULTS OF OPERATIONS
Net sales for the third quarter ended April 30, 1999 were $4,186,000 compared to
$4,492,000 for the same period last year. Decreased net sales resulted from an
unusually large amount of trade returns in the quarter ended April 30, 1999. Net
sales for the nine months ended April 30, 1999 increased by 15% compared with
the same period in 1998, due to increases in consumer, school and library and
special sales.
Gross profit margin for the third quarter ended April 30, 1999 amounted to
$2,117,000, or 50% of net sales compared to $2,280,000, or 50% of net sales for
the same period last year. For the nine months ended April 30, 1999 gross profit
margin was $6,532,000, or 48% of net sales compared to $5,803,000, or 50% of net
sales for the same period last year. This change in margin percentage is due
primarily to a large special sale at an unusually low margin.
Selling and marketing expenses for the quarter ended April 30, 1999 were 39% of
net sales compared to 32% of net sales for the quarter ended April 30, 1998. For
the nine months ended April 30, 1999 these expenses were 34% of net sales
compared to 32% of net sales for the same period in 1998.
General and administrative expenses increased by $85,000 to $544,000 for the
quarter ended April 30, 1999 compared to $459,000 for the quarter ended April
30, 1998. For the nine months ended April 30, 1999 these expenses increased by
$162,000 to $1,481,000 compared to $1,319,000 for the same period in 1998.
During the quarter ended April 30, 1999, the Company had an operating loss of
$73,000 compared with operating income of $392,000 for the same period in 1998.
For the nine months ended April 30, 1999 the operating income was $448,000
compared to $682,000 for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1999, the Company had a $7,500,000 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 April 30, 1999, the Company had $5,669,000 outstanding under this line as
compared to $4,395,000 as of April 30, 1998. This debt increased due to
increased working capital requirements.
As of April 30, 1999, the Company had cash and working capital of $338,000 and
$4,612,000, respectively, as opposed to cash and working capital of $97,000 and
$6,195,000, respectively, as of April 30, 1998.
Inventory of finished goods totaled $7,158,000 and $6,410,000 at April 30,1999
and 1998 respectively. The increase in Accounts Receivable of $485,000 from
April 30, 1998 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 January 31, 2000.
<PAGE>
However, there can be no assurance that the Company's working capital
requirements 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 January 31, 2000, the Company may seek
additional funds 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.
YEAR 2000 DISCLOSURE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the year. Any of the Company's computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than 2000. This could result in a system failure or
miscalculation causing disruption of operations; including among other things, a
temporary inability to process transactions, send invoices, or engage in similar
normal business activities.
Based upon a recent assessment, the Company determined that it was required to
upgrade or replace certain portions of its software so that its computer systems
will properly utilize dates beyond December 31, 1999. During 1998 and 1999, the
Company continued its implementation of computer hardware and software that is
Year 2000 compliant. Resources were devoted to the installation of computer
systems and training related to the new system. It is expected that the new
system will be fully installed and operational during 1999.
The Company presently believes that with upgrades of existing software and
conversions to new hardware and software, the Year 2000 Issue can be mitigated.
However, if such upgrades and conversions are not made, or are not completed or
available in time, the Year 2000 Issue could have a material impact on the
operations of the Company. Furthermore, the Company could be adversely affected
by the failure of various third parties, such as customers and suppliers, to
remediate their own Year 2000 Issue. The Company has initiated formal
communications with its significant suppliers and large customers to determine
the potential impact on the Company, and is presently in the process of
converting to Y2K compliant hardware and software where needed.
<PAGE>
PART II. OTHER INFORMATION
Item 5: Other Information
The Company has appointed David Allen as the new Chief Financial Officer. Mr.
Allen's focus will be on reducing operating expenses, increasing profitability,
maximizing cash flow and return on investment. In addition, with the appointment
of Mr. Allen, the Company will be reviewing all of its internal accounting
policies and estimates during the next quarter. This review may result in
non-cash charges for the quarter and fiscal year ending July 31, 1999. It should
be noted that any such charges could cause the Company to have operating losses
for that period.
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 14, 1999 By: /s/ David Allen
-----------------------
David Allen
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, 1999 and is
qualified in its entirety by reference to such consolidated financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> APR-30-1999
<CASH> 338,000
<SECURITIES> 0
<RECEIVABLES> 6,492,000
<ALLOWANCES> 756,000
<INVENTORY> 7,158,000
<CURRENT-ASSETS> 13,395,000
<PP&E> 250,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,883,000
<CURRENT-LIABILITIES> 8,783,000
<BONDS> 0
<COMMON> 17,591,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,883,000
<SALES> 13,512,000
<TOTAL-REVENUES> 13,512,000
<CGS> 6,980,000
<TOTAL-COSTS> 6,980,000
<OTHER-EXPENSES> 6,084,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 293,000
<INCOME-PRETAX> 155,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 155,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 155,000
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
