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: June 30, 2004
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 AUGUST 6, 2004: 8,021,654 SHARES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| June 30, 2004 |
March 31, 2004 |
|||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 2,214 | $ | 2,217 | ||||
| Accounts receivable, less allowance for doubtful accounts of $721 and $802 |
11,342 | 7,110 | ||||||
| Inventories |
11,293 | 8,407 | ||||||
| Prepaids and other assets |
2,174 | 2,398 | ||||||
| TOTAL CURRENT ASSETS |
27,023 | 20,132 | ||||||
| PROPERTY AND EQUIPMENT |
6,855 | 6,587 | ||||||
| OTHER ASSETS: |
||||||||
| Deferred income tax asset |
5,700 | 5,700 | ||||||
| Trademark and goodwill |
3,796 | 3,796 | ||||||
| Software development costs |
2,595 | 2,531 | ||||||
| Other assets |
4,208 | 4,369 | ||||||
| TOTAL OTHER ASSETS |
16,299 | 16,396 | ||||||
| TOTAL ASSETS |
$ | 50,177 | $ | 43,115 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable and accrued expenses |
$ | 14,186 | $ | 10,766 | ||||
| Revolving credit facility |
5,451 | 2,375 | ||||||
| Current portion of long-term liabilities - Other |
123 | 48 | ||||||
| TOTAL CURRENT LIABILITIES |
19,760 | 13,189 | ||||||
| LONG-TERM LIABILITIES: |
||||||||
| Other liabilities |
1,167 | 1,258 | ||||||
| SHAREHOLDERS’ EQUITY: |
||||||||
| Preferred stock, $2.50 par value, authorized 10,000,000 shares, issued and outstanding 4,579 ($4,579 liquidation value) |
4,557 | 4,557 | ||||||
| Common stock, no par value, authorized 50,000,000 shares, issued and outstanding, 8,019,154 and 7,944,232 shares |
80 | 80 | ||||||
| Additional paid in capital |
50,112 | 50,047 | ||||||
| Retained earnings (deficit) |
(24,564 | ) | (25,114 | ) | ||||
| Foreign currency translation adjustment |
(935 | ) | (902 | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY |
29,250 | 28,668 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 50,177 | $ | 43,115 | ||||
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 June 30, |
||||||||
| 2004 |
2003 |
|||||||
| SALES |
$ | 15,990 | $ | 14,983 | ||||
| COST OF SALES |
8,063 | 8,000 | ||||||
| GROSS MARGIN |
7,927 | 6,983 | ||||||
| EXPENSES: |
||||||||
| Sales and marketing |
4,272 | 4,131 | ||||||
| Research and development |
882 | 722 | ||||||
| General and administrative |
1,935 | 1,512 | ||||||
| Total operating expenses |
7,089 | 6,365 | ||||||
| OPERATING INCOME |
838 | 618 | ||||||
| Interest expense, net |
(67 | ) | (110 | ) | ||||
| Other, net |
35 | (212 | ) | |||||
| INCOME BEFORE INCOME TAXES |
806 | 296 | ||||||
| INCOME TAX PROVISION |
27 | 16 | ||||||
| NET INCOME |
779 | 280 | ||||||
| PREFERRED STOCK DIVIDEND |
229 | 208 | ||||||
| INCOME APPLICABLE TO COMMON SHAREHOLDERS |
$ | 550 | $ | 72 | ||||
| INCOME PER COMMON SHARE: |
||||||||
| Basic |
$ | 0.07 | $ | 0.01 | ||||
| Diluted |
$ | 0.06 | $ | 0.01 | ||||
| WEIGHTED AVERAGE COMMON SHARES: |
||||||||
| Basic |
8,002 | 7,947 | ||||||
| Diluted |
8,480 | 8,232 | ||||||
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 |
Preferred Stock |
Retained Earnings |
Accumulated |
Total |
||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
||||||||||||||||||||||
| BALANCE - MARCH 31, 2004 |
7,994,232 | $ | 80 | $ | 50,047 | 4,579 | $ | 4,557 | $ | (25,114 | ) | $ | (902 | ) | $ | 28,668 | |||||||||
| Amortization of deferred compensation expense for shares issued for services |
2 | 2 | |||||||||||||||||||||||
| Issuance of common shares under employee stock option plan |
24,922 | 63 | 63 | ||||||||||||||||||||||
| Preferred stock dividend |
(229 | ) | (229 | ) | |||||||||||||||||||||
| Income for the period |
779 | 779 | |||||||||||||||||||||||
| Foreign currency translation adjustment |
(33 | ) | (33 | ) | |||||||||||||||||||||
| BALANCE - JUNE 30, 2004 (unaudited) |
8,019,154 | $ | 80 | $ | 50,112 | 4,579 | $ | 4,557 | $ | (24,564 | ) | $ | (935 | ) | $ | 29,250 | |||||||||
| * | Comprehensive income, i.e., net income (loss), plus, or less, the change in foreign currency balance sheet translation adjustments, totaled $746 for the three months ended June 30, 2004. |
See notes to consolidated financial statements.
4
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
| Three Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| NET INCOME |
$ | 779 | $ | 280 | ||||
| ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
||||||||
| Depreciation and amortization |
757 | 780 | ||||||
| Provision for losses on accounts receivable |
40 | 35 | ||||||
| Loss (gain) on disposal of property and equipment |
(8 | ) | (4 | ) | ||||
| Source (use) of cash from change in operating assets and liabilities: |
||||||||
| Accounts receivable |
(4,272 | ) | (4,386 | ) | ||||
| Inventories |
(2,886 | ) | 314 | |||||
| Prepaids and other assets |
224 | 150 | ||||||
| Accounts payable and accrued expenses |
3,415 | 2,074 | ||||||
| Other, net |
9 | (17 | ) | |||||
| NET CASH USED IN OPERATING ACTIVITIES |
(1,942 | ) | (774 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Purchase of property and equipment |
(520 | ) | (400 | ) | ||||
| Proceeds from sale of property and equipment |
10 | 24 | ||||||
| Software development costs |
(340 | ) | (444 | ) | ||||
| Investment in MobiPocket |
— | (527 | ) | |||||
| Change in other assets |
(76 | ) | (125 | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES |
(926 | ) | (1,472 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from revolving credit facility |
3,076 | 2,480 | ||||||
| Cash dividends on preferred stock |
(229 | ) | — | |||||
| Proceeds from issuance of common shares |
63 | 7 | ||||||
| Other liabilities |
(12 | ) | (14 | ) | ||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES |
2,898 | 2,473 | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH |
(33 | ) | 105 | |||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(3 | ) | 332 | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
2,217 | 1,459 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 2,214 | $ | 1,791 | ||||
See notes to consolidated financial statements.
5
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in thousands)
Reference is made to the financial statements included in the Company’s Annual Report (Form 10-K) filed with the Securities and Exchange Commission for the year ended March 31, 2004.
The financial statements for the periods ended June 30, 2004 and 2003 are unaudited and include all adjustments necessary to a fair presentation of the results of operations for the periods then ended. All such adjustments are of a normal recurring nature. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for a full year.
OPERATIONS
Under Statement of Financial Accounting Standards No. 131, “Disclosure about Segments of an Enterprise and Related Information,” the Company’s operations are treated as one operating segment as it only reports profit and loss information on an aggregate basis to the chief operating decision maker of the Company. Information about the Company’s product sales are as follows:
| Three Months Ended June 30, | ||||||
| Product Sales |
2004 |
2003 | ||||
| Reference |
$ | 14,662 | $ | 12,333 | ||
| ROLODEX® Electronics |
482 | 1,513 | ||||
| Seiko |
667 | 804 | ||||
| eBookMan |
48 | 94 | ||||
| Other |
131 | 239 | ||||
| Total Sales |
$ | 15,990 | $ | 14,983 | ||