SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
| For Quarter ended December 31, 2002 |
Commission File No. 0-14841 |
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
(Exact name of Registrant as specified in its charter)
| Pennsylvania |
22-2476703 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
One Franklin Plaza, Burlington, New Jersey 08016-4907
(Address of principal executive office)
Registrant’s telephone number (609) 386-2500
Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
COMMON STOCK OUTSTANDING AS OF
DECEMBER 31, 2002—7,946,282 SHARES
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| December 31, 2002 |
March 31, 2002 |
|||||||
| (Unaudited) |
(Audited) |
|||||||
| ASSETS |
||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ |
3,426 |
|
$ |
2,497 |
| ||
| Accounts receivable, less allowance for doubtful accounts of $1,059 and $1,112 |
|
14,138 |
|
|
6,932 |
| ||
| Inventories |
|
11,976 |
|
|
11,107 |
| ||
| Income tax receivable |
|
999 |
|
|
809 |
| ||
| Prepaids and other assets |
|
2,268 |
|
|
2,354 |
| ||
| TOTAL CURRENT ASSETS |
|
32,807 |
|
|
23,699 |
| ||
| PROPERTY AND EQUIPMENT |
|
6,627 |
|
|
6,988 |
| ||
| OTHER ASSETS: |
||||||||
| Deferred income tax asset |
|
5,700 |
|
|
5,700 |
| ||
| Trademark and goodwill |
|
3,796 |
|
|
3,796 |
| ||
| Advance royalties and licenses |
|
670 |
|
|
580 |
| ||
| Software development costs |
|
2,142 |
|
|
2,583 |
| ||
| Other assets |
|
3,760 |
|
|
3,956 |
| ||
| TOTAL OTHER ASSETS |
|
16,068 |
|
|
16,615 |
| ||
| TOTAL ASSETS |
$ |
55,502 |
|
$ |
47,302 |
| ||
| LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable and accrued expenses |
$ |
11,707 |
|
$ |
11,409 |
| ||
| Current portion of long-term liabilities—Other |
|
126 |
|
|
35 |
| ||
| TOTAL CURRENT LIABILITIES |
|
11,833 |
|
|
11,444 |
| ||
| LONG-TERM LIABILITIES: |
||||||||
| Revolving credit facility |
|
13,570 |
|
|
10,138 |
| ||
| Other liabilities |
|
1,320 |
|
|
1,412 |
| ||
| TOTAL LONG-TERM LIABILITIES |
|
14,890 |
|
|
11,550 |
| ||
| SHAREHOLDERS' EQUITY: |
||||||||
| Preferred stock, $2.50 par value, authorized 10,000,000 shares, 4,153 and 3,767 issued and outstanding ($3,955 and $3,767 liquidation value) |
|
4,131 |
|
|
3,745 |
| ||
| Common stock, no par value, authorized 50,000,000 shares, issued and outstanding, 7,946,282 and 7,946,882 shares |
|
50,022 |
|
|
49,978 |
| ||
| Retained earnings (deficit) |
|
(24,397 |
) |
|
(28,255 |
) | ||
| Foreign currency translation adjustment |
|
(977 |
) |
|
(1,160 |
) | ||
| TOTAL SHAREHOLDERS' EQUITY |
|
28,779 |
|
|
24,308 |
| ||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
$ |
55,502 |
|
$ |
47,302 |
| ||
See notes to consolidated financial statements.
2
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except for per share data)
(unaudited)
| Three Months Ended December 31, |
Nine Months Ended December 31, |
|||||||||||||||
| 2002 |
2001 |
2002 |
2001 |
|||||||||||||
| SALES |
$ |
18,764 |
|
$ |
23,284 |
|
$ |
56,335 |
|
$ |
58,007 |
| ||||
| COST OF SALES |
|
10,302 |
|
|
12,367 |
|
|
30,973 |
|
|
33,944 |
| ||||
| WRITE-DOWN ON EBOOKMAN INVENTORY |
|
— |
|
|
— |
|
|
— |
|
|
2,898 |
| ||||
| TOTAL COST OF SALES |
|
10,302 |
|
|
12,367 |
|
|
30,973 |
|
|
36,842 |
| ||||
| GROSS MARGIN |
|
8,462 |
|
|
10,917 |
|
|
25,362 |
|
|
21,165 |
| ||||
| EXPENSES: |
||||||||||||||||
| Sales and marketing |
|
4,858 |
|
|
5,926 |
|
|
13,655 |
|
|
16,974 |
| ||||
| Research and development |
|
833 |
|
|
1,307 |
|
|
2,376 |
|
|
3,565 |
| ||||
| General and administrative |
|
1,950 |
|
|
1,614 |
|
|
5,362 |
|
|
5,163 |
| ||||
| Total operating expenses |
|
7,641 |
|
|
8,847 |
|
|
21,393 |
|
|
25,702 |
| ||||
| OPERATING INCOME (LOSS) |
|
821 |
|
|
2,070 |
|
|
3,969 |
|
|
(4,537 |
) | ||||
| Interest expense |
|
(191 |
) |
|
(493 |
) |
|
(594 |
) |
|
(1,308 |
) | ||||
| Interest and investment income |
|
(155 |
) |
|
52 |
|
|
(340 |
) |
|
(108 |
) | ||||
| Other, net |
|
87 |
|
|
(247 |
) |
|
243 |
|
|
(497 |
) | ||||
| INCOME (LOSS) BEFORE INCOME TAXES |
|
562 |
|
|
1,382 |
|
|
3,278 |
|
|
(6,450 |
) | ||||
| INCOME TAX PROVISION (BENEFIT) |
|
(966 |
) |
|
— |
|
|
(966 |
) |
|
— |
| ||||
| NET INCOME (LOSS) |
|
1,528 |
|
|
1,382 |
|
|
4,244 |
|
|
(6,450 |
) | ||||
| PREFERRED STOCK DIVIDEND |
|
198 |
|
|
179 |
|
|
386 |
|
|
267 |
| ||||
| NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS |
$ |
1,330 |
|
$ |
1,203 |
|
$ |
3,858 |
|
$ |
(6,717 |
) | ||||
| NET INCOME (LOSS) PER COMMON SHARE: |
||||||||||||||||
| Basic |
$ |
0.17 |
|
$ |
0.15 |
|
$ |
0.49 |
|
$ |
(0.85 |
) | ||||
| Diluted |
$ |
0.17 |
|
$ |
0.15 |
|
$ |
0.48 |
|
$ |
(0.85 |
) | ||||
| WEIGHTED AVERAGE COMMON SHARES: |
||||||||||||||||
| Basic |
|
7,946 |
|
|
7,948 |
|
|
7,947 |
|
|
7,949 |
| ||||
| Diluted |
|
8,017 |
|
|
7,948 |
|
|
8,037 |
|
|
7,949 |
| ||||
See notes to consolidated financial statements.
3
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands, except for share data)
| Common Stock |
Preferred Stock |
|||||||||||