sec document

10KSB/A 1 form10ksba03701_03072002.htm sec document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.

FORM 10-KSBA

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JULY 31, 2001

THE MILLBROOK PRESS INC.
(Name of Small Business Issuer as Specified in its Charter)

DELAWARE 06-1390025
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)

2 OLD NEW MILFORD ROAD
BROOKFIELD, CT 06804
(Address of principal executive offices)
(203) 740-2220
(Issuer's telephone number, including area code)

Securities Registered pursuant to Section 12 (b) of the Exchange Act:
Common Stock

Securities Registered pursuant to Section 12 (g) of the Exchange Act:
None

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
/ /

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not be contained, to the best of Registrant's
knowledge, in definitive proxy of information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
/X/

Revenues for the Fiscal year ended July 31, 2001 were $21.6 million.

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the price of the Common Stock on October 29, 2001, was
approximately $5,862,000. As of July 31, 2001, the Registrant had outstanding
2,849,887 shares of Common Stock.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion and analysis should be read in conjunction with the
Financial Statements of The Millbrook Press Inc. and related Notes to the
Financial Statements, which are included elsewhere in this Form 10-KSB.

OVERVIEW

GENERAL

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, the Company has incurred
significant expenses relating to the establishment of the infrastructure that
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.

The Company has substantially increased school and public library sales due to
(i) the acquisition in 1997 of Twenty-First Century Books from Henry Holt &
Co., Inc. and (ii) greater emphasis on telemarketing and direct sales.

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 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

FISCAL 2001 COMPARED TO FISCAL 2000

Fiscal 2001 revenues increased 1.1% from $21,400,000 in fiscal 2000 to
$21,600,000 in fiscal 2001. Increased sales resulted from a significant increase
in trade sales offset by a slight decline in the school and library business.
The decline in the school and library business was concentrated in (i) the
telemarketing sales area, which experienced significant management changes
during the year and (ii) the low margin special sales area consisting of special

large volume one off printings based on specific titles. Though the sales are
sizable they are infrequent and contribute a very low margin.

Gross profits for the year ended July 31, 2001 were $9,358,000, or 43.3% of net
sales compared to $9,604,000 or 44.9% of net sales for the year ended July 31,
2000. The percentage decrease is due to a sizeable donation of books to charity.

Selling and marketing expenses for fiscal 2001 increased to 31% of net sales
from 27% of net sales for fiscal 2000. Expenses increased by $793,000 over the
previous year. The major component of the increase is the Company's $300,000
investment in a new unpublished fiction imprint, Roaring Brook Press. Other
increases were in telemarketing, direct marketing and direct selling materials.

General and administrative expenses for fiscal 2001 increased $49,000 to 9% of
net sales, the same as a year ago. This is a result of the Company's effort to
control costs and increase productivity.

Net operating profit for the year ended July 31, 2001 was $747,000 compared to a
profit of $1,835,000 for the previous year.

Interest expense decreased from $496,000 in fiscal 2000 to $440,000 in fiscal
2001. The decrease in interest expense is due to decreased interest rates over
fiscal 2000 on the Company's line of credit, offset by higher borrowings.

Net income after tax for the year ended July 31, 2001 was $144,000, compared to
a profit of $1,136,000 in the previous year.

The Company incurred an operating loss in the fourth quarter due to the
following items. The Company recorded a severance liability of $100,000 upon the
termination of employment of Mr. Jeffrey Conrad, the Company's former President
who left the Company as of June 1, 2001. A copy of the Termination and
Settlement Agreement between the Company and Mr. Conrad was filed with the
Company's Quarterly Report on Form 10-QSB for the quarter ended April 30, 2001.
In addition the Company donated $133,000 of inventory in July 2001, taking a
charge to cost of goods and increased the inventory reserve by $150,000 taking a
charge to cost of goods. The increase in reserve in the quarter is due to a
change in strategy of remaindering certain inventory whereby the Company plans
to make further donations or to sell certain inventory at less than the normal
remainder value.

BALANCE SHEET

The Company believes it has an adequate reserve for product returns and customer
bad debts. This reserve was 7.5% at the end of fiscal year 2001 and 9.6% of
accounts receivable at the end of fiscal year 2000. The decline in reserve is
justified as there had been a significant improvement in the aging of accounts
receivable year over year and large sales to a specific customer at the end of
fiscal 2001 have a return limit which is less than the average returns for that
sales type. The actual returns and bad debts for the 2001 fiscal year were
approximately $2,100,000 compared to $2,900,000 for fiscal 2000. The decline in
actual returns activity year over year when sales remained constant support the
decreased reserve balance.

The Company believes that it has an adequate reserve for slow moving inventory.
As of July 31, 2001, the reserve was 9.1% of gross inventory ($710,000) compared
to 11.5% ($869,000) as of July 31, 2000. The increase in actual inventory is due

mainly to receipt of fall 2001 titles prior to year-end. The Company made a
significant effort in fiscal 2001 to either remainder or donate slow moving
titles. During fiscal 2001 the Company either donated or sold, at less than
cost, inventory amounting to approximately $675,000 as compared to $400,000 for
fiscal year 2000.

Royalty advances have increased mainly due to the investment in Roaring Brook
Press, the Company's new fiction imprint. The advances are for titles scheduled
to publish in spring 2002 and beyond. The Company believes its reserve for
unearned royalty advances is adequate as of July 31, 2001. During fiscal year
1999 the Company wrote off $650,000 of unearned royalty advances. No advances
were written off during 2001 or 2000.

LIQUIDITY AND CAPITAL RESOURCES

As of July 31, 2001, the Company had cash and working capital of $16,000 and
$4,100,000 respectively, compared to cash and working capital of $0 and
$5,200,000, respectively as of July 31, 2000 (All cash at July 31, 2001 and 2000
was used to reduce the outstanding loan balance).

The Company has available 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 interests in the assets
of the Company or to pay dividends on the Company's securities. As of July 31,
2001, the Company has $4,565,000 outstanding under this line, all of which is
classified as a current liability since it is due on demand. The $7,500,000 is
the maximum available, however, it may be lower based upon the eligible value of
accounts receivable and inventory. As of July 31, 2001 the maximum loan
available was $6,751,000. On October 23, 2001, the Company and People's Bank
signed the Fourth Amendment to the Loan and Security Agreement, (the
"Amendment"). The Amendment extended the term of the Agreement to December 31,
2004, waived the noncompliance with certain covenants as of July 31, 2001 and
reset certain covenants required to be met by the Company. In addition, the
Amendment called for an additional grant of security interest in certain
property, as defined in the Agreement. For further information relating to the
People's Bank loan agreement, see Note (4) of "Notes to Financial Statements".

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 at least through July 31, 2002. Although the
Company believes that its current available resources will be sufficient to meet
its working capital requirements the Company may seek additional funds for
operations from borrowings or through debt or equity financing.

FORWARD-LOOKING STATEMENTS

This Form 10-KSB 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-KSB 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.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

THE MILLBROOK PRESS INC.

Dated: March 11, 2002 By: /s/ David Allen
-------------- ----------------------------------------
David Allen
Chief Financial Officer