Middleton hunts for continuity cash

By Staff -- Playthings, 5/16/2008 8:48:00 AM

WAUKESHA, Wis.—Despite slimming its net loss for the first quarter of 2008, The Middleton Doll Co. said falling sales and rising operating costs are putting the company’s future in jeopardy.

Middleton, which operates separate consumer products and financial services divisions, reported a consolidated net loss of $799,145 or $0.21 per diluted share, for the first quarter of 2008, down from a net loss of $847,675 for the corresponding period of 2007.

The consumer products segment reported a net loss of $659,520 for the first quarter of 2008, compared to a net loss of $743,997 for the same period in the prior year. Gross profit was 28.0 percent of consumer products net sales in the first quarter of 2008, compared to 28.5 percent of sales in the first quarter of 2007.

Lee Middleton Original Dolls sales were $709,756 in the first quarter of 2008, a decrease of $332,535 from the first quarter of 2007. Increased sales of the company’s Playbabies and Middleton NOW line of collector-quality contemporary dolls were not enough to offset the continued decline in sales of higher-priced Artist Studio Collection collectible dolls, according to the company.

Sales of clocks and other décor items marketed by the company’s License Products Inc. subsidiary ( which does business as FirsTime Manufactury) were $1,726,649 in the first quarter of 2008, an increase of $591,389 from the same period in the prior year.

"Although the consumer products segment had a net improvement of 11.4 percent in the first quarter of 2008, the business continued to incur net losses and negative cash flows from operating activities,” said Salvatore L. Bando, Middleton’s president and CEO.

Middleton’s financial services segment reported a net loss of $13,500 for the first quarter of 2008, compared to net income of $40,328 for the comparable prior period. The business unit is comprised primarily of the remaining assets of the lending and real estate leasing business of its former subsidiary, Bando McGlocklin Small Business Lending Corporation. During 2006, the financial services segment sold substantially all of its assets and used the net proceeds to pay off indebtedness, fund working capital at the consumer products segment, pay preferred stock dividends and partially redeem preferred stock. The company does not intend to continue in the financial services segment after the remaining financial services segment’s assets are sold or otherwise liquidated.

Despite a year-end report from the company’s auditors expressing “substantial doubt” as to the company’s ability to continue as a going concern, Brando said, “We continue to anticipate, based on current projections and absent any adverse factors outside of our control, that the cash that will be generated from additional asset sales and existing operations, together with existing cash balances and other potential sources of financing, such as loan agreements entered into in 2007, should be sufficient to meet operating and working capital requirements through December 31, 2008.”

“However,” Bando added. “We also continue to anticipate that the company will not have sufficient funds to redeem $9.39 million of preferred stock by July 1, 2008. We are actively pursuing various alternatives to address all of our financial obligations, including the redemption of preferred stock ... If the preferred stock is not redeemed by July 1, 2008, then the company is obligated to redeem the preferred stock as soon as it has legally available funds for the redemption.”

Alternative funds finding moves would include a financing transaction, a disposition of assets, a recapitalization of the company or a strategic business combination, Bando said.

Pictured: Little Bailey from Middleton's Playbabies collection