UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: December 31, 2003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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)
(609) 386-2500
(Registrant’s Telephone Number)
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, 2003: 7,970,532 SHARES
PART I. FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| December 31, 2003 |
March 31, 2003 |
|||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 2,222 | $ | 1,459 | ||||
| Accounts receivable, less allowance for doubtful accounts of $853 and $892 |
12,337 | 6,579 | ||||||
| Inventories |
9,900 | 12,009 | ||||||
| Prepaids and other assets |
2,366 | 2,261 | ||||||
| TOTAL CURRENT ASSETS |
26,825 | 22,308 | ||||||
| PROPERTY AND EQUIPMENT |
6,678 | 6,606 | ||||||
| OTHER ASSETS: |
||||||||
| Deferred income tax asset |
5,700 | 5,700 | ||||||
| Trademark and goodwill |
3,796 | 3,796 | ||||||
| Software development costs |
2,409 | 2,026 | ||||||
| Other assets |
4,488 | 4,378 | ||||||
| TOTAL OTHER ASSETS |
16,393 | 15,900 | ||||||
| TOTAL ASSETS |
$ | 49,896 | $ | 44,814 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable and accrued expenses |
$ | 11,733 | $ | 10,600 | ||||
| Current portion of long-term liabilities – Other |
126 | 47 | ||||||
| TOTAL CURRENT LIABILITIES |
11,859 | 10,647 | ||||||
| LONG-TERM LIABILITIES: |
||||||||
| Revolving credit facility |
7,210 | 6,134 | ||||||
| Other liabilities |
1,190 | 1,308 | ||||||
| TOTAL LONG-TERM LIABILITIES |
8,400 | 7,442 | ||||||
| SHAREHOLDERS’ EQUITY: |
||||||||
| Preferred stock, $2.50 par value, authorized 10,000,000 shares, 4,579 and 4,153 issued and outstanding ($4,579 and $4,153 liquidation value) |
4,557 | 4,131 | ||||||
| Common stock, $0.01 par value, authorized 50,000,000 shares, issued and outstanding, 7,970,532 and 7,946,282 shares |
80 | 79 | ||||||
| Additional paid in capital |
49,978 | 49,943 | ||||||
| Accumulated deficit |
(24,351 | ) | (26,340 | ) | ||||
| Foreign currency translation adjustment |
(627 | ) | (1,088 | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY |
29,637 | 26,725 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 49,896 | $ | 44,814 | ||||
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, |
|||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||
| SALES |
$ | 18,873 | $ | 18,764 | $ | 49,527 | $ | 56,335 | ||||||||
| COST OF SALES |
9,636 | 10,302 | 25,774 | 30,973 | ||||||||||||
| GROSS MARGIN |
9,237 | 8,462 | 23,753 | 25,362 | ||||||||||||
| EXPENSES: |
||||||||||||||||
| Sales and marketing |
4,961 | 4,858 | 13,285 | 13,655 | ||||||||||||
| Research and development |
867 | 833 | 2,270 | 2,376 | ||||||||||||
| General and administrative |
1,851 | 1,950 | 5,095 | 5,362 | ||||||||||||
| Total operating expenses |
7,679 | 7,641 | 20,650 | 21,393 | ||||||||||||
| OPERATING INCOME |
1,558 | 821 | 3,103 | 3,969 | ||||||||||||
| Interest expense |
(137 | ) | (191 | ) | (403 | ) | (594 | ) | ||||||||
| Interest and investment income (loss) |
(266 | ) | (155 | ) | (535 | ) | (340 | ) | ||||||||
| Other, net |
175 | 87 | 213 | 243 | ||||||||||||
| INCOME BEFORE INCOME TAXES |
1,330 | 562 | 2,378 | 3,278 | ||||||||||||
| INCOME TAX PROVISION (BENEFIT) |
(58 | ) | (966 | ) | (37 | ) | (966 | ) | ||||||||
| NET INCOME |
1,388 | 1,528 | 2,415 | 4,244 | ||||||||||||
| PREFERRED STOCK DIVIDEND |
218 | 198 | 426 | 386 | ||||||||||||
| INCOME APPLICABLE TO COMMON SHAREHOLDERS |
$ | 1,170 | $ | 1,330 | $ | 1,989 | $ | 3,858 | ||||||||
| INCOME PER COMMON SHARE: |
||||||||||||||||
| Basic |
$ | 0.15 | $ | 0.17 | $ | 0.25 | $ | 0.49 | ||||||||
| Diluted |
$ | 0.14 | $ | 0.17 | $ | 0.24 | $ | 0.48 | ||||||||
| WEIGHTED AVERAGE COMMON SHARES: |
||||||||||||||||
| Basic |
7,971 | 7,946 | 7,962 | 7,947 | ||||||||||||
| Diluted |
8,343 | 8,017 | 8,328 | 8,037 | ||||||||||||
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 |
Additional Paid in Capital |
Preferred Stock |
Accumulated Deficit |
Accumulated Income* |
Total Equity | |||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||
| BALANCE - MARCH 31, 2003 |
7,946,282 | $ | 79 | $ | 49,943 | 4,153 | $ | 4,131 | $ | (26,340 | ) | $ | (1,088 | ) | $ | 26,725 | ||||||||
| Issuance of common shares under employee stock option plan |
24,250 | 1 | 35 | — | — | — | — | 36 | ||||||||||||||||
| Preferred stock dividend |
426 | 426 | (426 | ) | — | |||||||||||||||||||
| Income for the period |
— | — | — | — | — | 2,415 | — | 2,415 | ||||||||||||||||
| Foreign currency translation adjustment |
— | — | — | — | — | — | 461 | 461 | ||||||||||||||||
| BALANCE - DECEMBER 31, 2003 (unaudited) |
7,970,532 | $ | 80 | $ | 49,978 | 4,579 | $ | 4,557 | $ | (24,351 | ) | $ | (627 | ) | $ | 29,637 | ||||||||
| * | Comprehensive income, i.e., net income, plus, or less, the change in foreign currency balance sheet translation adjustments, totaled $2,876 for the nine months ended December 31, 2003. |
See notes to consolidated financial statements.
4
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended December 31, |
||||||||
| 2003 |
2002 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| NET INCOME |
$ | 2,415 | $ | 4,244 | ||||
| ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
||||||||
| Depreciation and amortization |
2,443 | 2,421 | ||||||
| Provision for losses on accounts receivable |
137 | 121 | ||||||
| Loss (gain) on disposal of property and equipment |
(5 | ) | 13 | |||||
| Equity earnings of associated companies |
(55 | ) | — | |||||
| Stock issued for services |
— | 45 | ||||||
| Source (use) of cash from change in operating assets and liabilities: |
||||||||
| Accounts receivable |
(5,895 | ) | (7,327 | ) | ||||
| Inventories |
2,109 | (870 | ) | |||||
| Prepaids and other assets |
(98 | ) | 896 | |||||
| Accounts payable and accrued expenses |
1,136 | 297 | ||||||
| Income tax refund receivable |
— | (999 | ) | |||||
| Other, net |
(38 | ) | (60 | ) | ||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
2,149 | (1,219 | ) | |||||