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, 2000.
( ) 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, 2000.
2,859,887 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, 2000
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three and nine months ended
April 30, 2000 and 1999
Balance Sheet as of APRIL 30, 2000
Statements of Cash Flows for nine months ended April 30, 2000
and 1999
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
April 30 April 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $15,476,000 $13,512,000 $ 4,984,000 $ 4,186,000
Cost of sales 8,084,000 6,980,000 2,446,000 2,069,000
----------- ----------- ----------- -----------
Gross profit 7,392,000 6,532,000 2,538,000 2,117,000
Operating expenses:
Selling and marketing 4,669,000 4,603,000 1,678,000 1,646,000
General and administrative 1,374,000 1,481,000 506,000 544,000
----------- ----------- ----------- -----------
Total operating expenses 6,043,000 6,084,000 2,184,000 2,190,000
----------- ----------- ----------- -----------
Operating income (loss) 1,349,000 448,000 354,000 (73,000)
Interest expense 368,000 293,000 129,000 93,000
----------- ----------- ----------- -----------
Income (loss) before income tax 981,000 155,000 225,000 ( 166,000)
Provision for income tax 129,000 0 13,000 0
----------- ----------- ----------- -----------
Net income (loss) $ 852,000 $ 155,000 $ 212,000 ($ 166,000)
=========== =========== =========== ===========
Earnings (loss) per share $ 0.27 $ 0.04 $ 0.07 ($ 0.05)
=========== =========== =========== ===========
(basic and diluted)
Weighted average shares outstanding 3,157,444 3,455,000 2,859,887 3,455,000
=========== =========== =========== ===========
</TABLE>
<PAGE>
THE MILLBROOK PRESS INC.
Balance Sheet
April 30, 2000
Assets
------
Cash $20,000
Accounts receivable, net 5,568,000
Inventory, net 7,340,000
Royalty advances, net 699,000
Prepaid expense and other assets 220,000
-----------
Total current assets 13,847,000
Plant costs, net 4,225,000
Royalty advances, net 953,000
Fixed assets, net 247,000
Goodwill, net 2,966,000
-----------
Total assets $22,238,000
===========
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable and accrued expenses $3,310,000
Notes payable to bank 4,698,000
Royalties payable 210,000
Current portion of long term debt 300,000
-----------
Total current liabilities 8,518,000
Long term debt 564,000
Total liabilities 9,082,000
-----------
Stockholders' Equity
Common stock, par value $.01, 12,000,000
shares authorized, 3,455,000 shares issued
and 2,859,887 shares outstanding 35,000
Additional paid in capital 17,556,000
Treasury stock (967,000)
Accumulated deficit (3,468,000)
-----------
Total stockholders' equity 13,156,000
-----------
Total liabilities & stockholders' equity $22,238,000
===========
<PAGE>
THE MILLBROOK PRESS INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine months ended April 30
2000 1999
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 852,000 $ 155,000
Add (deduct) to reconcile net income to net cash flow:
Depreciation and amortization 1,455,000 1,388,000
Changes in assets & liabilities:
Accounts receivable 536,000 (791,000)
Inventory (261,000) (449,000)
Prepaid expenses and other assets 20,000 12,000
Accounts payable & accrued expenses (682,000) (541,000)
---------- ----------
Cash provided by operating activities: 1,920,000 (226,000)
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (90,000) (90,000)
Plant costs (1,080,000) (1,174,000)
---------- ----------
Cash used in investing activities (1,170,000) (1,264,000)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit (760,000) 1,794,000
Proceeds from long term debt 864,000 0
Purchase of treasury stock (967,000) 0
---------- ----------
Cash provided by (used in) financing activities (863,000) 1,794,000
---------- ----------
Net increase (decrease) in cash (113,000) 304,000
---------- ----------
Cash at beginning of period 133,000 34,000
---------- ----------
Cash at end of period $ 20,000 $ 338,000
=========== ===========
Supplemental disclosure:
Interest paid $ 368,000 $ 293,000
=========== ===========
Income tax paid $ 39,000 $ 137,000
=========== ===========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
April 30, 2000
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,
2000 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, $.01 par value per
share (the "Common Stock"), under its 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.
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 and nine month periods.
Purchase of Treasury Stock
On December 16, 1999, the Company purchased 595,113 shares of Common Stock in a
private transaction for an aggregate purchase price of $967,000 or $1.625 per
share. Upon consumation of the transaction, the repurchased shares of Common
Stock were placed in treasury. On January 31, 2000, the Company borrowed
additional funds to finance the transaction (see Notes Payable to Bank). For the
period from December 16, 1999 to January 31, 2000, the Company's working capital
was used for this transaction.
Notes Payable to Bank
As of April 30, 2000, the Company had available a $7,500,000 revolving line of
credit with People's Bank and the Company had $4,698,000 outstanding under this
line. The $7,500,000 is the maximum available, however it may be lower based
upon the eligible value of accounts receivable
<PAGE>
and inventory. As of April 30, 2000, the eligible inventory and accounts
receivable was $6,377,000. The Company is in compliance with all covenants of
the loan agreement with People's Bank, as amended January 31, 2000. On January
31, 2000, the Company borrowed an additional $964,000 from People's Bank for the
purchase of 595,113 shares of its common stock, of which $600,000 is based on a
24 month unsecured term loan with equal monthly payments of $25,000 per month,
with interest on the outstanding balance at prime plus 2%. The remaining
$364,000 is secured by eligible accounts receivable and inventory of the Company
and is payable on January 1, 2002. Interest on the outstanding balance is at the
Bank's prime rate.
Taxes
Federal income taxes have been provided for the three and nine months ended
April 30, 2000, as the Company has fully utilized its 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 1200 hardcover
and 600 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 book titles are published primarily for the
library market. 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 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.
<PAGE>
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 third quarter ended April 30, 2000 were $4,984,000 compared to
$4,186,000 for the same period last year, an increase of 19%. Net sales for the
nine months ended April 30, 2000 were $15,476,000 compared to $13,512,000 for
the same period last year, an increase of 14.5%. Increased sales in both the
school and public library and consumer markets account for the favorable
variance.
Gross profit margin for the third quarter ended April 30, 2000 amounted to
$2,538,000, or 50.9% of net sales compared to $2,117,000 or 50.5% of net sales
for the same period last year. For the nine months ended April 30, 2000 gross
profit margin was $7,392,000, or 47.7% of net sales compared to $6,532,000, or
48.3% of net sales for the same period last year.
Selling and marketing expenses for the quarter ended April 30, 2000 were 33.7%
of net sales compared to 39.3% of net sales for the quarter ended April 30,
1999. For the nine months ended April 30, 2000, selling and marketing expenses
were 30.2% compared to 34.1% of net sales for the same period in 1999. Increased
sales while holding costs constant account for this favorable variance.
General and administrative expenses decreased by $38,000 to $506,000 for the
quarter ended April 30, 2000 compared to $544,000 for the quarter ended April
30, 1999. For the nine months ended April 30, 2000 these expenses decreased by
$107,000 to $1,374,000 compared to $1,481,000 for the same period in 1999.
<PAGE>
During the quarter ended April 30, 2000, the Company had operating income of
$354,000 compared with an operating loss of $73,000 for the same period in 1999.
For the nine months ended April 30, 2000 operating income was $1,349,000
compared to $448,000 for the same period in 1999. Increased sales, lower sales
and marketing costs along with lower administrative costs account for this
favorable variance.
Interest expense for the quarter ended April 30, 2000 was $129,000 compared to
$93,000 for the same period last year due to increased bank borrowing. For the
nine months ended April 30, 2000 interest expense was $368,000 compared to
$293,000 for the same period in 1999.
Net income for the quarter ended April 30, 2000 was $212,000 compared to a net
loss of $166,000 for the same period last year. For the nine months ended April
30, 2000 net income was $852,000 compared to $155,000 for the same period in
1999.
Liquidity and Capital Resources
-------------------------------
As of April 30, 2000, the Company had up to $7,500,000 revolving line of credit
with People's Bank (see Notes to Financial Statements). 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 April 30, 2000, the Company had $4,698,000 outstanding under this line
compared to $5,669,000 as of April 30, 1999. This debt decreased due to
increased cash flow from operations. In addition (as described under Notes to
Financial Statements) the Company had outstanding $864,000 for the purchase of
treasury stock.
As of April 30, 2000, the Company had cash and working capital of $20,000 and
$5,329,000, respectively, as opposed to cash and working capital of $338,000 and
$4,612,000, respectively, as of April 30, 1999.
Inventory of finished goods totaled $7,340,000 and $7,158,000 at April 30, 2000
and 1999 respectively. The level of inventory has remained consistant with the
prior year and reflects an adequate level of trade and school and library
backlist titles. The increase in accounts receivable of $115,000 from April 30,
1999 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 April 30, 2001. 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 April 30, 2001, the Company may seek additional funds
through debt or equity financing. The Company has no agreements, commitments or
understandings with respect to such debt or equity financing.
<PAGE>
Year 2000 Disclosure
--------------------
The Company has no material Year 2000 computer issues to report. All internal
and third party hardware and software has functioned as expected since January
1, 2000. There has been no loss of business or disruption in day to day
operations. The Company will continue to monitor all computer operations during
the next quarter to insure continued compliance. The Company's costs regarding
Year 2000 compliance were in line with budget and were not material to the
Company's operating results or cash position.
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
--------------------------
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
<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)
June 14, 2000 By: /s/ David Allen
----------------------------------
David Allen
Chief Financial Officer
