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, 1999.
( ) Transition report under Section 13 or 15(d) of the Exchange Act For the
transition period from to
---------------- -----------------
Commission file number
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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 October 31, 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
October 31, 1999
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three months ended October 31,
1999 and 1998
Balance Sheet as of October 31, 1999
Statements of Cash Flows for three months ended October 31,
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
2
<PAGE>
THE MILLBROOK PRESS INC.
Statements of Operations
Three months ended
October 31
1999 1998
---- ----
Net sales $5,208,000 $4,815,000
Cost of sales 2,661,000 2,465,000
---------- ----------
Gross profit 2,547,000 2,350,000
Operating expenses:
Selling and marketing 1,539,000 1,533,000
General and administrative 405,000 419,000
---------- ----------
Total operating expenses 1,944,000 1,952,000
---------- ----------
Operating income 603,000 398,000
Interest expense 114,000 93,000
---------- ----------
Net income $ 489,000 $ 305,000
========== ==========
Earnings per share (basic and diluted) $ 0.14 $ 0.09
========== ==========
Weighted average shares outstanding 3,455,000 3,455,000
========== ==========
3
<PAGE>
THE MILLBROOK PRESS INC.
Balance Sheet
October 31, 1999
Assets
- ------
Cash $ 90,000
Accounts receivable, net 6,076,000
Inventory 7,092,000
Royalty advances, net 699,000
Prepaid expense and other assets 351,000
------------
Total current assets 14,308,000
Plant costs, net 4,239,000
Royalty advances, net 728,000
Fixed assets, net 229,000
Goodwill, net 3,073,000
------------
Total assets $ 22,577,000
============
Liabilities and Stockholders' Equity
- ------------------------------------
Accounts payable and accrued expenses $ 3,016,000
Notes payable to bank 5,643,000
Royalties payable 156,000
------------
Total current liabilities 8,815,000
Stockholders' Equity
Common stock, par value $.01, 12,000,000
shares authorized, 3,455,000 shares issued
and outstanding 35,000
Additional paid in capital 17,556,000
Accumulated deficit (3,829,000)
------------
Total stockholders' equity 13,762,000
------------
Total liabilities & stockholders' equity $ 22,577,000
============
4
<PAGE>
THE MILLBROOK PRESS INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended October 31
1999 1998
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 489,000 $ 305,000
Add (deduct) to reconcile net income to net cash flow:
Depreciation and amortization 487,000 435,000
Changes in assets & liabilities:
Accounts receivable 28,000 (1,020,000)
Inventory (13,000) 80,000
Prepaid expenses and other assets 113,000 89,000
Accounts payable & accrued expenses (1,028,000) (225,000)
----------- -----------
Cash provided by (used in) operating activities: 76,000 (336,000)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (20,000) (20,000)
Plant costs (284,000) (353,000)
----------- -----------
Cash used in investing activities (304,000) (373,000)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit 185,000 761,000
----------- -----------
Cash provided by financing activities 185,000 761,000
----------- -----------
Net increase (decrease) in cash (43,000) 52,000
Cash at beginning of period 133,000 34,000
----------- -----------
Cash at end of period $ 90,000 $ 86,000
=========== ===========
Supplemental disclosure:
Interest paid $ 114,000 $ 93,000
=========== ===========
Income tax paid $ 15,000 $ 101,000
=========== ===========
</TABLE>
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 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 October 31,
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 included in
the Company's Form 10KSB for the fiscal year ended July 31, 1999.
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.
Earnings Per Share
In December 1997, the company adopted Statement of Financial Accounting Standard
(SFAS 128) "Earnings Per Share". SFAS 128 presents earnings 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. The following table
details the computation of basic and diluted earnings per share for the three
month periods.
6
<PAGE>
For the three months ended
October 31,
1999 1998
---- ----
Net income $ 489,000 $ 305,000
Basic & dilutive shares 3,455,000 3,455,000
Basic & diluted EPS $ 0.14 $ 0.09
Notes Payable to Bank
As of October 31, 1999, the Company had available a $7,500,000 revolving line of
credit with People's Bank and the Company had $5,643,000 outstanding under this
line. As of October 31, 1999, the Company is in compliance with all covenants of
the loan agreement with People's Bank, as amended June 10, 1998.
Taxes
No federal income taxes have been provided for the three months ended October
31, 1999 and 1998 due to the Company's net operating loss carryforwards.
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 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.
7
<PAGE>
Consumer Market Compared to the School and Public Library Market
As the Company sells 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 return 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. 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, 1999 were $5,208,000 compared
to $4,815,000 for the same period last year. Increased sales in both the school
and public library and consumers markets accounted for the favorable results.
Gross profit margin for the first quarter ended October 31, 1999 amounted to
$2,547,000 or 49% of net sales compared to $2,350,000, or 49% of net sales for
the same period last year.
8
<PAGE>
Selling and marketing expenses for the quarter ended October 31, 1999 were 30%
of net sales compared to 32% of net sales for the quarter ended October 31,
1998.
General and administrative expenses decreased by $14,000 to $405,000 for the
quarter ended October 31, 1999 compared to $419,000 for the quarter ended
October 31, 1998.
During the quarter ended October 31, 1999, the Company had operating income of
$603,000 compared with operating income of $398,000 for the same period in 1998.
Interest expense for the quarter ended October 31, 1999 was $114,000 compared to
$93,000 for the same period last year due to increased bank borrowing for
working capital needs of $1,000,000.
Net income for the quarter ended October 31, 1999 was $489,000 compared to
$305,000 for the same period last year.
Liquidity and Capital Resources
- -------------------------------
As of October 31, 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, to grant security interest
in the assets of the Company or to pay dividends on the Company's securities.
As of October 31, 1999, the Company had $5,643,000 outstanding under this line
as compared to $4,636,000 as of October 31, 1998. This debt increased due to
increased working capital requirements.
As of October 31, 1999, the Company had cash and working capital of $90,000 and
$5,493,000, respectively, as opposed to cash and working capital of $86,000 and
$5,864,000, respectively, as of October 31, 1998.
Inventory of finished goods totaled $7,092,000 and $6,628,000 at October 31,
1999 and 1998 respectively. The higher level of inventory is due to the
beginning reader program and the increasing size of our trade and school and
library backlist. The increase in accounts receivable of $111,000 from October
31, 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 July 31, 2000. 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 July 31, 2000, the Company may seek additional funds through
debt or equity financing.
9
<PAGE>
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
- --------------------
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and
software used by many companies, including customers and potential customers of
the Company, may need to be upgraded to comply with such "Year 2000"
requirements. The Company is closely monitoring the progress the developers of
the software the Company utilizes in many of its customer projects, as well as
the developers of the software utilized in internal systems are making towards
ensuring that the products the Company utilizes are Year 2000 compliant. The
Company believes that its internal systems and third party software incorporated
into client solutions will be Year 2000 compliant. Failure to provide Year 2000
compliant business solutions and software to its customers could have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company's costs to ensure that internal systems and software
acquired for integration into client business solutions are Year 2000 compliant
has not been and is not expected to become significant.
Further, the Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or patch their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase products and services such as those offered by the Company.
10
<PAGE>
PART II. Other Information
- --------------------------
Item 5: Other Information
None
Item 6: Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit 27--Financial Data Schedule
(b) Form 8-K--None
11
<PAGE>
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 1, 1999 By: /S/ David Allen
----------------------------------
David Allen
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AS OF OCTOBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 90,000
<SECURITIES> 0
<RECEIVABLES> 6,866,000
<ALLOWANCES> 790,000
<INVENTORY> 7,092,000
<CURRENT-ASSETS> 14,308,000
<PP&E> 229,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,577,000
<CURRENT-LIABILITIES> 8,815,000
<BONDS> 0
<COMMON> 17,591,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,577,000
<SALES> 5,208,000
<TOTAL-REVENUES> 5,208,000
<CGS> 2,661,000
<TOTAL-COSTS> 2,661,000
<OTHER-EXPENSES> 1,944,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,000
<INCOME-PRETAX> 489,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 489,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 489,000
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
