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: September 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 NOVEMBER 5, 2004: 8,056,408 SHARES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| September 30, 2004 |
March 31, 2004 |
|||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 2,530 | $ | 2,217 | ||||
| Accounts receivable, less allowance for doubtful accounts of $703 and $802 |
9,490 | 7,110 | ||||||
| Inventories |
13,084 | 8,407 | ||||||
| Prepaids and other assets |
2,364 | 2,398 | ||||||
| TOTAL CURRENT ASSETS |
27,468 | 20,132 | ||||||
| PROPERTY AND EQUIPMENT |
6,733 | 6,587 | ||||||
| OTHER ASSETS: |
||||||||
| Deferred income tax asset |
5,700 | 5,700 | ||||||
| Trademark and goodwill |
3,796 | 3,796 | ||||||
| Software development costs |
2,676 | 2,531 | ||||||
| Other assets |
4,222 | 4,369 | ||||||
| TOTAL OTHER ASSETS |
16,394 | 16,396 | ||||||
| TOTAL ASSETS |
$ | 50,595 | $ | 43,115 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable and accrued expenses |
$ | 13,801 | $ | 10,766 | ||||
| Revolving credit facility |
5,146 | 2,375 | ||||||
| Current portion of long-term liabilities - Other |
133 | 48 | ||||||
| TOTAL CURRENT LIABILITIES |
19,080 | 13,189 | ||||||
| LONG-TERM LIABILITIES: |
||||||||
| Other liabilities |
1,169 | 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, $0.01 par value, authorized 50,000,000 shares, issued and outstanding, 8,053,033 and 7,944,232 shares |
81 | 80 | ||||||
| Additional paid in capital |
50,168 | 50,047 | ||||||
| Retained earnings (deficit) |
(23,619 | ) | (25,114 | ) | ||||
| Foreign currency translation adjustment |
(841 | ) | (902 | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY |
30,346 | 28,668 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 50,595 | $ | 43,115 | ||||
See notes to consolidated statements.
2
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except for per share data)
(unaudited)
| Three Months Ended September 30, |
Six Months Ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| SALES |
$ | 16,246 | $ | 15,671 | $ | 32,236 | $ | 30,654 | ||||||||
| COST OF SALES |
8,463 | 8,138 | 16,526 | 16,138 | ||||||||||||
| GROSS MARGIN |
7,783 | 7,533 | 15,710 | 14,516 | ||||||||||||
| EXPENSES: |
||||||||||||||||
| Sales and marketing |
3,873 | 4,194 | 8,145 | 8,324 | ||||||||||||
| Research and development |
873 | 681 | 1,755 | 1,403 | ||||||||||||
| General and administrative |
1,769 | 1,732 | 3,704 | 3,244 | ||||||||||||
| Total operating expenses |
6,515 | 6,607 | 13,604 | 12,971 | ||||||||||||
| OPERATING INCOME |
1,268 | 926 | 2,106 | 1,545 | ||||||||||||
| Interest expense, net |
(99 | ) | (138 | ) | (166 | ) | (249 | ) | ||||||||
| Other, net |
(145 | ) | (36 | ) | (110 | ) | (248 | ) | ||||||||
| INCOME BEFORE INCOME TAXES |
1,024 | 752 | 1,830 | 1,048 | ||||||||||||
| INCOME TAX PROVISION |
79 | 5 | 106 | 21 | ||||||||||||
| NET INCOME |
945 | 747 | 1,724 | 1,027 | ||||||||||||
| PREFERRED STOCK DIVIDEND |
— | — | 229 | 208 | ||||||||||||
| INCOME APPLICABLE TO COMMON SHAREHOLDERS |
$ | 945 | $ | 747 | $ | 1,495 | $ | 819 | ||||||||
| INCOME PER COMMON SHARE: |
||||||||||||||||
| Basic |
$ | 0.12 | $ | 0.09 | $ | 0.19 | $ | 0.10 | ||||||||
| Diluted |
$ | 0.11 | $ | 0.09 | $ | 0.18 | $ | 0.10 | ||||||||
| WEIGHTED AVERAGE COMMON SHARES: |
||||||||||||||||
| Basic |
8,036 | 7,970 | 8,019 | 7,955 | ||||||||||||
| Diluted |
8,494 | 8,341 | 8,472 | 8,287 | ||||||||||||
See notes to consolidated 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 |
Retained Earnings |
Accumulated Income * |
Total Equity |
||||||||||||||||||||
| 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 |
4 | 4 | |||||||||||||||||||||||
| Issuance of common shares under employee stock option plan |
58,801 | 1 | 117 | 118 | |||||||||||||||||||||
| Preferred stock dividend |
(229 | ) | (229 | ) | |||||||||||||||||||||
| Income for the period |
1,724 | 1,724 | |||||||||||||||||||||||
| Foreign currency translation adjustment |
61 | 61 | |||||||||||||||||||||||
| BALANCE - SEPTEMBER 30, 2004 (unaudited) |
8,053,033 | $ | 81 | $ | 50,168 | 4,579 | $ | 4,557 | $ | (23,619 | ) | $ | (841 | ) | $ | 30,346 | |||||||||
| * | Comprehensive income, i.e., net income (loss), plus, or less, the change in foreign currency balance sheet translation adjustments, totaled $1,785 for the six months ended September 30, 2004. |
See notes to consolidated statements.
4
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
| Six Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| NET INCOME |
$ | 1,724 | $ | 1,027 | ||||
| ADJUSTMENTS TO RECONCILE NET INCOME TO |
||||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
||||||||
| Depreciation and amortization |
1,480 | 1,587 | ||||||
| Provision for losses on accounts receivable |
87 | 76 | ||||||
| Loss (gain) on disposal of property and equipment |
(8 | ) | (4 | ) | ||||
| Source (use) of cash from change in operating assets and liabilities: |
||||||||
| Accounts receivable |
(2,467 | ) | (5,366 | ) | ||||
| Inventories |
(4,676 | ) | (1,129 | ) | ||||
| Prepaids and other assets |
33 | (53 | ) | |||||
| Accounts payable and accrued expenses |
3,041 | 2,903 | ||||||
| Other, net |
3 | (16 | ) | |||||
| NET CASH USED IN OPERATING ACTIVITIES |
(783 | ) | (975 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Purchase of property and equipment |
(648 | ) | (682 | ) | ||||
| Proceeds from sale of property and equipment |
10 | 24 | ||||||
| Software development costs |
(679 | ) | (911 | ) | ||||
| Investment in MobiPocket |
— | (527 | ) | |||||
| Change in other assets |
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