SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR QUARTER ENDED JULY 31, 1995 COMMISSION FILE NO.
0-8512
MONARCH AVALON, INC.
(Exact name of small business issuer as specified in its
charter)
Delaware 52-1073628
(State or other jurisdiction of (IRS
Employer Identification No.)
incorporation or organization)
4517 Harford Road, Baltimore, Maryland
21214
(address of principal executive offices)
Registrant's telephone number, including area code
410-254-9200
Not applicable
Former name, former address and former fiscal year, if
changed since last report
Check whether the issuer (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 the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES NO X
As of July 31, 1995, the number of shares outstanding of the
issuer's common stock was 1,620,170 shares.
Transitional Small Business Issue Format (check one): YES __
NO X
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(000's omitted)
<TABLE>
<CAPTION> July 31, April 30,
<S> 1995 1995
ASSETS <C> <C>
CURRENT ASSETS
Cash and cash equivalents $1,574 $1,628
Investments (at lower of cost or market) 159 161
Account receivable, net 1,100 1,343
Inventories, net 2,055 2,138
Other current assets 385 186
TOTAL CURRENT ASSETS
5,273 5,456
PROPERTY AND EQUIPMENT 4,649 4,737
Less allowance for depreciation(4,094) (3,985)
555 752
OTHER ASSETS AND DEFERRED CHARGES 37 37
$5,865 $6,245
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $320 $372
Accrued expenses 192 359
Deferred subscription revenue 128 153
TOTAL CURRENT LIABILITIES 640 884
STOCKHOLDERS' EQUITY
Preferred Stock-par value $.01 per share:
Authorized 100,00 shares; no shares issued
Common Stock-par value $.25 per share:
Authorized 3,000,000 shares; shares issued-
2,109,985; shares outstanding 1,620,170 on July
31, 1995 and April 30, 1995 527 527
Capital surplus 3,379 3,379
Retained earnings 1,441 1,577
5,347 5,483
Treasury stock at par-489,815 shares on July 31,
1995 and April 30, 1995 (122) (122)
5,225 5,361
5,865 6,245
</TABLE>
See notes to Consolidated Financial Statements.
MONARCH AVALON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
______________
1995
1994
(000's omitted, except
per share data)
<S> <C> <C>
Net Sales $1,535 $1,371
Cost of goods sold 1,143 1,054
Gross profit 392 317
Selling, general and administrative expenses 444 473
Research and development 97 106
541 579
Loss before income taxes (149) (262)
Other income, net 13 22
Before Income Taxes Loss (136) (240)
Provision for income taxes 0 0
Net Loss ($136) ($240)
Loss per share ($0.08) ($0.15)
Weighted average shares outstanding1,620,170 1,633,040
</TABLE>
See notes to Consolidated Financial Statements.
MONARCH AVALON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
1995
1994
(000's omitted)
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Loss ($136) ($240)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and Amortization 109 53
Unrealized loss or investments 2
0
Changes in, accounts receivable, inventories,
other assets, accounts payable, accrued
expenses, and deferred subscription revenue (117)
(197)
Net cash used in operating activities (142)
(384)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (12)
(43)
Cash proceeds from disposal of property and
equipment 100 0
Net cash provided by (used in) investing activities
88 (43)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Purchase of treasury stock 0 (26)
Net cash provided (used in) financing activities 0
(26)
Net decrease in cash and cash equivalents (54)
(453)
Cash and cash equivalents at beginning of period 1,628
2,675
Cash and cash equivalents at end of period $1,574
$2,222
</TABLE>
See notes to Consolidated Financial Statements.
MONARCH AVALON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
including Monarch Avalon, Inc. ("Monarch") and its wholly
owned subsidiary, Girls' Life, Inc. (Monarch and Girl's
Life, Inc. collectively referred to herein as "the Company")
have been prepared in accordance with the instructions to
Form 10-QSB and do not include all of the information and
disclosures required by generally accepted accounting
principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals and charges) considered necessary for a
fair presentation have been included. All material
intercompany balances between Monarch and its subsidiary
have been eliminated in consolidation. Operating results
for the three months ended July 31, 1995 are not necessarily
indicative of the results that may be expected for the year
ending April 30, 1996. For further information, reference
should be made to the financial statements and notes
included in the Company's annual report on Form 10-KSB for
the fiscal year ended April 30, 1995.
NOTE B -- ACCOUNTS RECEIVABLE
Accounts receivable are net of the following allowances:
<TABLE>
<CAPTION>
July 31, 1995 April 30, 1995
(000's omitted)
<S> <C> <C>
Doubtful accounts $74 $85
Customer returns 198 243
$272 $328
</TABLE>
NOTE C -- INVENTORIES
For quarterly reporting purposes, Monarch values inventory
using both perpetual records and physical counts, while at
year-end values are determined solely on the basis of
physical counts.
The major components of inventories consist of the
following:
<TABLE>
<CAPTION>
July 31, 1995 April 30,
1995
<S> <C> <C>
Raw materials and component parts $1,079 $1,202
Work in progress 222 210
Finished goods 754 726
$2,055 $2,138
</TABLE>
The above components are shown net of lower of cost of
market reserves of $350,000 at July 31, 1995 and April 30,
1995. The Company values its inventories at the lower of
cost (first-in, first-out) or market.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For purposes of this discussion references to "fiscal 1996"
are to the fiscal year ending April 30, 1996, and references
to "fiscal 1995" are to the fiscal year ended April 30,
1995.
RESULTS OF OPERATIONS
Monarch consists of two divisions, games and printing.
Girls' Life, Inc., a wholly-owned subsidiary, publishes a
magazine.
Sales of products in the games division, primarily board
games and software games designed for use on microcomputers,
are somewhat seasonal in nature because of increased retail
game sales during the Christmas season, while sales of the
Company's other products (envelopes, printing and graphic
arts services and Girls' Lifer magazine) are not seasonal.
The timing of new releases of the Company's games also may
affect sales in the games division.
Net sales increased by $164,000 or 12% in the first quarter
of fiscal 1996 as compared to the first quarter of fiscal
1995. Sales in the games division decreased by $78,000 or
9% in the first quarter of fiscal 1996 compared to the first
quarter of fiscal 1995 as a result of fewer new releases of
microcomputer games. Sales in the printing division
increased by $97,000 in the first quarter of fiscal 1996 or
20% from the first quarter of fiscal 1995. Sales of Girls'
Lifer magazine in the first quarter of fiscal 1996 accounted
for $145,000 or 9% of total net sales. There were minimal
Girls' Life sales recorded in the first quarter of fiscal
1995 as the magazine's first issue was published in the
second quarter of that year.
Gross profit increased by $75,000 or 24% during the first
quarter of fiscal 1996. Consolidated gross margin was 26%
of net sales during the first quarter of fiscal 1996 as
compared to 23% during the first quarter of fiscal 1995.
The increase in gross margin primarily relates to enhanced
gross margins on printing sales. Game sales continue to
carry higher gross margins than printing sales. While
Girls' Lifer failed to cover its cost to publish,
subscription and advertising revenues from Girl's Lifer have
continued to increase.
Operating expenses were 35% of net sales in the first
quarter of fiscal 1996 as compared to 42% in the first
quarter of fiscal 1995. Operating expenses for the first
quarter of fiscal 1996 decreased by $38,000 or 6% from
fiscal 1995, primarily because of cost containment measures.
Other income, which consists of interest income, dividends
from investments and unrealized losses on investments, was
$13,000 during the first quarter of fiscal 1996 as compared
to $22,000 during the first quarter of 1995. The decline is
primarily due to a smaller cash balance and unrealized
losses on investments.
As previously, reported, the Company is experiencing adverse
trends in each of the segments in which it does business.
In its games segment, the Company has been adversely
affected by substantial marketing and royalty expenses and
difficult marketing conditions, including shorter shelf
lives and higher sales returns. In the printing segment,
results have been hurt by competitive pressures on sales
prices. In its publishing segment, the Company's costs to
publish Girls' Lifer have continued to exceed the magazine's
revenues.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1995 the Company had cash and cash equivalents
of $1,574,000, a decrease of $54,000 from the amount at
April 30, 1995. The decrease resulted from cash used in
operations of $142,000, offset by the sale of certain idle
printing equipment, which resulted in cash provided by
financing activities of $88,000. The Company's cash and
cash equivalents are subject to variation based upon the
timing of receipts and the payment of payables.
At July 31, 1995, the Company has no debt with third party
lenders.
In view of these trends and those discussed under "Results
of Operations," in July 1995 the Company announced that it
had retained financial advisors to explore strategic
business and financial alternatives. These could include,
among other things, possible business combinations,
dispositions of assets or divisions or other similar
transactions. No decisions have been reached as to any such
alternatives, and satisfactory arrangements are not assured.
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 5
NONE / NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Description
27 Financial Data Schedule
(b) Forms 8-K
The Company did not file any reports on Form 8-K during the
three months ended July 31, 1995.
SIGNATURES
In accordance with the requirements of the Securities
Exchange Act of 1934, the registrant has caused this report
to be signed on its behalf by the undersigned, thereunto
duly authorized.
MONARCH AVALON, INC.
Date September 14, 1995 /s/ A. Eric Dott
A. Eric Dott
Chairman of Board
(Principal Executive Officer and
Principal Financial Officer)
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Monarch
Avalon, Inc.'s unaudited financial statements for the quarter ended
July 31, 1995, and is qualified in its entirety by reference to such
financial statements and the notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-END> JUL-31-1995
<CASH> 1,574
<SECURITIES> 159
<RECEIVABLES> 1,100
<ALLOWANCES> 0
<INVENTORY> 2,055
<CURRENT-ASSETS> 5,273
<PP&E> 4,649
<DEPRECIATION> 4,094
<TOTAL-ASSETS> 5,865
<CURRENT-LIABILITIES> 640
<BONDS> 0
<COMMON> 527
0
0
<OTHER-SE> 4,698
<TOTAL-LIABILITY-AND-EQUITY> 5,865
<SALES> 1,535
<TOTAL-REVENUES> 1,535
<CGS> 1,143
<TOTAL-COSTS> 1,684
<OTHER-EXPENSES> (13)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (136)
<INCOME-TAX> 0
<INCOME-CONTINUING> (136)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (136)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
