<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 1996 COMMISSION FILE NO. 0-8512
---------------------
MONARCH AVALON, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 410-254-9200 52-1073628
(State or other jurisdiction (Issuer's telephone number, (I.R.S. Employer)
of incorporation or organization) including area code) Identification No.)
4517 HARFORD ROAD, 21214
BALTIMORE, MARYLAND (zip code)
(Address of principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.25 par value
(Title of each class)
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 past
twelve 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 /x/ No / /
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended April 30, 1996 are
$6,518,703.
As of July 15, 1996, the aggregate market value of the Issuer's common
stock held by non-affiliates was $1,661,267.
As of July 15, 1996, the number of shares outstanding of the Issuer's
common stock was 1,620,170.
---------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be filed under Regulation
14A for the annual meeting to be held October 4, 1996 are incorporated by
reference into Part III.
Transitional small business disclosure format (check one): Yes / / No/x/
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Monarch Avalon, Inc. (the "Company") was incorporated in Delaware on
December 20, 1976 as a holding company. On May 1, 1980, the two 100%
owned subsidiaries, Monarch Office Services, Inc. and The Avalon
Hill Game Company were merged into one Maryland corporation named
Monarch Avalon Industries, Inc., later renamed on August 5, 1984 as
The Avalon Hill Game Company, Inc. The Company established
Microcomputer Games, Inc. in 1979 as a subsidiary of The Avalon Hill
Game Company and Victory Games, Inc. in 1983 as a subsidiary of the
Company. Monarch Toy Company LTD. was incorporated as a subsidiary
of the Company on March 24, 1986. On April 30, 1991, Victory Games,
Inc., Microcomputer Games, Inc. and Monarch Toy Company, LTD. were
voluntarily dissolved. The Avalon Hill Game Company, Inc. merged
with Monarch Avalon, Inc. making the registrant the sole operating
company at April 30, 1991. These dissolutions and the merger were
accomplished to recognize that certain of the Company's operations
were discontinued and to reduce the expense of maintaining these
subsidiaries. On December 14, 1993, the Company incorporated a new
subsidiary, Girls' Life, Inc.
In July 1995 the Company announced that it had recently been
adversely affected by marketing and competitive conditions. These
developments include short shelf lives and higher marketing expense
for computer games, poor results from commercial printing and
expenses associated with Girls' Life-Registered Trademark- magazine.
In view of these developments, the Company is exploring strategic
business and financial alternatives. These could include, among other
things, possible business combinations, disposition of assets or
divisions or other similar transactions. No decisions have been
reached as to any such alternatives, and satisfactory arrangements
are not assured. See "Management's Discussion and Analysis or Plan
of Operation" in Part II, Item 6 below.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Note H "Segment Information" in the Notes to Consolidated
Financial Statements in Part II, Item 7 below.
(c) NARRATIVE DESCRIPTION OF BUSINESS
PRINCIPAL PRODUCTS
The Company operated in three business segments during fiscal 1996:
games, printing and publishing. All segments share certain
facilities and operate under common management. The games segment
develops, manufactures and markets a wide variety of strategy,
sports and family-oriented board games, as well as a line of software
games designed for use on microcomputers. The games segment
contributed $3,395,000 in net sales or approximately 52% of the
Company's total revenue in 1996.
Monarch Services, the printing segment, provides commercial printing
and graphic arts services to a wide range of business customers and
manufactures envelopes. Monarch Services also serves as the
production facility for the games segment, producing printed
materials and boxes for games. Interdivision sales or transfers are
accounted for at prices comparable to unaffiliated customer sales.
The printing segment contributed $2,521,000 in net sales or
approximately 39% of the Company's total revenue in 1996.
Girls' Life, Inc. publishes a magazine for young girls ages seven to
fourteen. The magazine, Girls' Life-Registered Trademark-, was
launched in August 1994. It is a bi-monthly publication but the
magazine may eventually be published monthly. The publishing segment
contributed $602,000 in net sales or approximately 9% of the
Company's total revenue in 1996.
2
<PAGE>
Item 1. BUSINESS--(continued)
THE GAMES SEGMENT
BOARD GAMES
The Company has a line of strategy, sports and family-oriented board
games. The Company first entered the games market in 1958 when it
introduced its first strategy game. Since that time, it has become
a significant player in the strategy games portion of the games
market, which consists primarily of teenagers and adults who are
"game hobbyists". The games are designed to be challenging, and in
many cases the typical playing time for a game is three to six hours.
The Company's sports and family-oriented board games are also
designed for use by the teenage and adult recreational market. The
Company entered this portion of the games market in the mid 1960's
and expanded through the acquisition of the Sports Illustrated Games
Division from Time, Inc. and through the internal development of new
games. The Company markets a variety of games including games of
mass-market appeal, and wargame simulations.
SOFTWARE GAMES
The Company also develops, produces and markets under the name
"Microcomputer Games" a line of software games which are designed
for use on microcomputers. The first games were introduced in June
1980. The line includes strategy, sports and family-oriented games;
some are derivations of the Company's existing board games and
others have been developed as unique computer games with playing
characteristics that could not be used in board games.
The Company re-entered the computer game market during fiscal year
1994 with two new releases late in the fourth quarter. Computer games
sales accounted for approximately 25% of total game sales for fiscal
1996.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development are essential aspects of the
Company's game business. The Company has an ongoing program for the
development of new games and the modification of existing games. The
Company also regularly receives ideas for games from outside
creative sources, and from time to time purchases rights to existing
games from other companies in the games business. In most cases, the
Company enters into an agreement requiring it to make payments of
royalties based on game sales. The cost of research and development
for fiscal 1996 was approximately $367,000 and approximately $543,000
for fiscal 1995. These costs were charged to operations as incurred.
See Statements of Operations and "Management's Discussion and
Analysis or Plan of Operation" in Part II, Items 7 and 6,
respectively, below.
COPYRIGHTS AND TRADEMARKS
The Avalon Hill Game Company name and the Company's games are
generally protected by registered trademarks and copyrights in the
United States and foreign countries to the extent that such
protection is available. Such protection is of considerable
importance in the games business. The duration of the protection
provided by these rights is generally in excess of the economic life
of any particular game.
PRINTING AND ENVELOPE SEGMENT
Monarch Services offers a full line of printing and graphic arts
services to a wide range of customers in the industrial, financial
and advertising fields. Its services include offset and letterpress
printing, design and idea conception, finished art, and direct
mailing. Monarch Services also manufactures various types and sizes
of envelopes to customer order.
Monarch Services is also the production arm for the games segment.
It designs the graphics for and prints all of the Company's games,
and manufactures the boxes in which the games are sold. During
fiscal 1996 game production accounted for more than 22% of Monarch
Services' revenues on an interdivision basis. The loss of game
production would have a material adverse effect on Monarch Services'
revenues.
3
<PAGE>
Item 1. BUSINESS--(continued)
PUBLISHING SEGMENT
GIRLS' LIFE-Registered Trademark-
Girls' Life-Registered Trademark- is intended to be an intelligent,
non-condescending and easily readable magazine targeted to girls
ages seven to fourteen. The philosophy behind the graphic
representation and every article presented is that girls are
important, independent, and intelligent people with opinions of
their own. These articles seek to reinforce that message and inspire
confidence in a girl's thoughts, opinions, and feelings. Editorial
material is created by the magazine's staff as well as through
outside writers.
MARKETING
The Company's games are marketed in the United States and abroad. In
the United States, board games are primarily sold to toy jobbers,
toy stores, department stores, large retail chains and book stores.
The Company's line of games for personal computers is sold primarily
to software wholesalers and computer stores which sell both hardware
and software. Except for certain direct order sales to consumers,
all United States sales are made through sales representative
organizations which are paid on a commission basis. In fiscal 1996
and 1995, games sales to the Company's ten largest United States
customers accounted for approximately 39% and 51%, respectively, of
total game sales. A certain customer of computer games accounted for
approximately 16% of net sales in fiscal 1995. No one customer
accounted for over 10% of sales in 1996.
The Company uses direct mail, trade and consumer publications, and
trade shows to introduce and promote its games. It does not
extensively use direct television advertising as is common in the
toys and games industry.
Printing and graphic arts services and envelopes are marketed
primarily in the Baltimore-Washington area through Company sales
personnel who are compensated on a salary and commission basis.
Girls' Life-Registered Trademark- is sold by subscription and on the
newsstand. Subscriptions are sold by direct-mail solicitation,
insert cards and other traditional sources. Newsstand copies are
distributed internationally by Warner Publisher Services.
FOREIGN OPERATIONS; EXPORT SALES
Sales of games abroad are made to independent distributors located
in various countries. Export sales were $560,600 for fiscal 1996,
$797,000 for fiscal 1995 and $549,300 for fiscal 1994. The following
table shows for each of the Company's last three fiscal years,
export sales of its games and magazine to the Company's four largest
foreign markets.
SALES (IN DOLLARS)
REGION 1996 1995 1994
----------------------------------------------------------
Japan $ 21,900 $ 50,000 $ 36,400
Canada 102,300 153,900 80,700
United Kingdom 222,000 402,300 292,800
Australia 55,100 72,200 30,200
SEASONALITY; CUSTOMER FINANCING TERMS
The Company's games business is somewhat seasonal in nature because
of increased retail game sales during the Christmas season. Sales
are highest during the periods August through October when retailers
purchase stock for that season, and February through April when
large customers take deliveries in order to take advantage of
discounts and payment terms offered by the Company for volume
purchases on an "early buy" basis. The early purchase program, which
is a common industry practice, together with the need to maintain an
inventory of finished games in order to satisfy reorder requests
quickly, results in a substantial working capital requirement. To
date, the Company has met this requirement through the internal
generation of funds. See "Management's Discussion and Analysis or
Plan of Operation" and Note D of Notes to Consolidated Financial
Statements in Part II, Items 7 and 6, respectively, below.
The Company's printing and publishing businesses are not seasonal in
nature.
4
<PAGE>
Item 1. BUSINESS--(continued)
The Company offers credit terms to its trade customers for the
purchase of its products. Payments are due from the Company's trade
customers based upon sales and purchase arrangements which may vary
depending upon the identity of the customer and the nature of the
product. In some instances, trade customers may receive credit for
unsold merchandise, or may exchange unsold merchandise for new
products. See Note C of Notes to Consolidated Financial Statements
and "Management's Discussion and Analysis or Plan of Operation" in
Part II, Items 7 and 6, respectively, below, for a description of
the Company's allowance for doubtful accounts and for sales returns.
COMPETITION
There are a number of companies engaged in the sale of board and
software games, including a number which are significantly larger
than the Company. While the Company considers itself to be a player
in the strategy games market, the overall board game market,
including sports and family games, is dominated by a few large
companies. The Company considers the primary competitive factors for
its line to be the challenge and play appeal of the boardgames it
develops. In addition to these qualitative factors, in the context
of software games other competitive factors include brand
recognition, access to distribution channels and shelf space, price,
timing to market, hardware compatibility, packaging, and ease of
installation and operation. The Company's pricing of its games is
generally competitive for the types of games that it sells.
Competition in the sale of software games is intense as hundreds of
small and medium-sized companies develop software games for use on
various makes of computers. The Company does not consider any one
competitor to be dominant.
The commercial printing, graphic arts and envelope manufacturing
industry in the Baltimore-Washington market is highly competitive.
There are numerous companies operating in this market, although the
Company believes that no single company is dominant. The Company
considers the primary competitive factors to be quality, speed of
production and pricing.
Competition in the magazine industry is intense with numerous other
publishers and retailers, as well as other media, competing for
readers and advertising revenue. The Company considers the primary
competitive factors to be the underlying philosophy of Girls'
Life-Registered Trademark- and the market segment being served.
RAW MATERIALS
The principal raw materials used by the Company are finished paper,
paperboard and ink. The Company generally purchases its requirements
for each of these items from single sources, but the Company
believes there are, at present, numerous sources from which its
requirements could be met.
EMPLOYEES
At June 30, 1996, the Company employed approximately 103 full time
personnel, including 16 executive and administrative personnel, 11
research and development personnel and 76 production personnel. None
of the Company's employees are represented by a union.
Item 2. DESCRIPTION OF PROPERTY
The Company leases property at the following locations for the
following purposes:
1. 4517 Harford Road, Baltimore, Maryland 21214. This property
contains the Company's offices as well as its printing plant.
The property is leased through 1999.
2. 6500 Quad Avenue, Baltimore, Maryland 21205. This property
contains a manufacturing and warehouse facility and the lease
expires on April 30, 1998.
5
<PAGE>
The Company leases the Harford Road property from A. Eric Dott who
is the Chairman and a major stockholder of the Company. Although not
negotiated at arms length, management believes the terms of the
lease with Mr. Dott are comparable to lease terms for like
properties in the same geographic area.
See "Certain Transactions" in the proxy statement of the Company for
the 1996 Annual Meeting of Stockholders and Note F of Notes to
Consolidated Financial Statements included in Part II, Item 7, below.
Item 3. LEGAL PROCEEDINGS
Companies in the game and publishing industries are, in the ordinary
course of business, made the subject of actions alleging copyright
infringement and other actions. Such actions may allege large
damages. The Company has, on an infrequent basis, had such claims
made against it. No claims which would impact the financial
statements materially are outstanding at April 30, 1996.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
NONE
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
COMMON STOCK MARKET PRICES AND DIVIDENDS
The Company's common stock is traded on the Nasdaq National Market
under the symbol MAHI. The number of stockholders of record on July
15, 1996 was 643.
High and low closing sale prices for the last two years as reported
on the Nasdaq National Market were:
Fiscal 1996 Fiscal 1995
--------------- ---------------
Quarter Price Price
Ended --------------- ---------------
High Low High Low
------- ----- ----- -----
July 31 2 13/16 1 5/8 3 2 1/4
October 31 2 13/16 1 7/8 3 1/4 2 5/8
January 31 2 1/8 1 1/2 3 7/8 2
April 30 2 1 1/2 3 1/2 2 1/8
The Company has not paid any cash dividends since April 1987.
Although the board of directors will continue to review the
Company's profitability with respect to the resumption of dividends,
there can be no assurance as to the timing or amount of any future
dividends.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS 1994 THROUGH 1996
Sales decreased $836,000 or 11% in 1996 from 1995. The decrease
relates primarily to game sales which decreased $1,291,000 or 28% in
1996 from 1995. Computer game sales decreased $1,610,000 or 66% in
1996 from 1995 due to fewer computer game releases coupled with the
shorter shelf lives of computer games. Board game sales increased
$319,000 or 13% in 1996 from 1995. Printing sales increased $117,000 or 5%
from 1995 related sales. Girls' Life-Registered Trademark- sales of
$602,000 accounted for 9% of total net sales for fiscal 1996. Girls'
Life-Registered Trademark- sales increased $338,000 or 128% in 1996 from
1995. The increase is due to increased subscription and advertising
revenues. The allowance for doubtful accounts at the end of fiscal
1996 was increased $50,000 to account for estimates of uncollectible
amounts related to the increased volume in sales of the magazine.
In 1995 sales increased $1,664,000 or 29% from 1994. The increase
was due to the Company's sales promotions in the computer game
market which accounted for $1,996,000 or 42% of game net sales.
Printing sales declined $29,000 or 1% from 1994 sales due to
competitive pressures on sales prices in order to maintain volume.
Girls' Life-Registered Trademark- sales of $264,000 accounted for 4%
of net sales in its initial year of operations.
6
<PAGE>
Foreign sales decreased $236,000 or 30% and increased $248,000 or
45% in 1996 and 1995, respectively. The decrease in foreign sales in
1996 is due to lack of new game releases during the year. The
increase in fiscal 1995 was driven by foreign shipments of computer
games.
Cost of goods sold as a percent of sales was 72% in 1996, 69% in
1995 and 73% in 1994. The increase in 1996 was due to the decrease
in game sales as a percentage of total net sales from 64% in 1995 to
52% in 1996. Game sales, especially computer game sales, carry
higher gross margins than printing sales. Printing sales continued
to carry low margins as a result of competitive market prices and
increases in paper prices during 1995 and most of fiscal year 1996.
Girls' Life-Registered Trademark- revenues failed to cover its costs
to publish by $14,000 in 1996 and $193,000 in 1995. The magazine
hopes to successfully continue in its attempts to increase its
subscription and distribution base as well as increase revenues from
advertisers.
Selling, general and administrative expenses as a percentage of
sales were 32% in 1996, 34% in 1995, and 25% in 1994. The decrease
in 1996 of $470,000 is principally due to the decrease in selling,
general and administrative expenses in royalty and advertising
expenses in the game sales segment due to decreased sales on the
computer side and fewer new releases which typically generate
royalty expenses. In 1995, selling, general and administrative
expenses increased $1,117,000 due to the royalty and advertising
expenses associated with increased sales of computer games.
Research and development expenses decreased $175,000 in 1996, and
increased $241,000 in 1995. The decrease in 1996 is due to the
decrease in research and development costs associated with startup
costs for the Girls' Life-Registered Trademark- magazine from
$177,000 which occurred in 1995.
Other income decreased $35,000 and $11,000 in 1996 and 1995,
respectively. The 1996 and 1995 decreases were primarily due to
unrealized losses attributed to marketable securities and drops in
interest rates which adversely affected interest income on cash
balances held.
In 1995, a deferred income tax expense was provided for as
management of the Company concluded it is more likely than not that
the Company will not generate taxable income sufficient to realize
the tax benefit associated with future temporary differences and
operating loss carryforwards prior to their expiration and therefore
recorded a full valuation reserve against its deferred tax asset.
Given the losses in fiscal 1996, management's conclusion as to the
future realization of net deferred tax assets remains unchanged. As
such, in fiscal 1996 no deferred benefit has been recognized.
Benefits for current income taxes of $45,000 and $4,000 have been
recorded in 1995 and 1994 respectively, as a result of carrying back
net operating losses generated, to years in which income taxes has
been paid. No provision (benefit) for current income taxes has been
recorded for fiscal year 1996.
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 difficult marketing conditions, including
shorter shelf lives and higher sales returns. In the printing
segment, sales and results have been hurt by competitive pressures
on sales prices coupled with rising costs of paper. In the
publishing segment, while revenues increased in 1996, Girls'
Life-Registered Trademark- magazine failed to cover its costs to
publish.
LIQUIDITY AND SOURCES OF CAPITAL
Cash and cash equivalents increased $339,000 in fiscal 1996 to
$1,996,000, and decreased $1,047,000 in 1995. The increase in 1996
is principally the result of cash provided by operations and
proceeds from the sale of equipment. The decrease in 1995 results
from cash used to fund operations, particularly the start-up of
Girls' Life-Registered Trademark- and the re-emergence into the
computer games market. During 1996 and 1995, the Company maintained
an average balance for certificates of deposit and treasury bills of
approximately $1,375,000 and $2,100,000, respectively.
The Company leases its office, warehouse, and manufacturing
facilities under non-cancellable operating leases. Annual
commitments under these leases at April 30, 1996 are as follows:
1996 through 1998--$297,000, 1999 and beyond--$107,000. Certain of
these leases are with the Company's Chairman and a member of his
family.
At April 30, 1996, the Company has no debt with third-party lenders.
During July 1996, cash and cash equivalents ranged from
approximately $1.8 million to $2.0 million and was approximately
$2.0 million at July 26, 1996. The Company's cash and cash
equivalents are subject to variation based upon the timing of
receipts and the payment of payables.
In view of these trends and those discussed under "Results of
Operations," the Company is exploring 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.
7
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
Due to the highly competitive nature of the industry segments in which the
Company operates, increased costs were unable to be fully passed on to
customers in the three year period ended April 30, 1996.
Charges to depreciation represent the allocation of historical costs over
past years, and are significantly less than if they were based on the
consumption of current cost of productive assets. Assets replaced in future
years will be replaced at significantly higher costs but replacements are
expected to produce economies in production.
Item 7. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- -------------------------------------------------------------------------------
April 30, 1996 1995
- -------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................ $1,966,425 $1,627,915
Marketable securities, at fair value............. 124,195 161,244
Accounts receivable, net......................... 848,604 1,343,289
Inventories, less allowance for obsolescence
(1996 and 1995--$350,000)
Raw materials and component parts.............. 910,722 1,200,608
Work in progress............................... 113,756 210,398
Finished goods................................. 916,828 726,396
------------------------
1,941,306 2,137,402
Refundable income taxes.......................... -- 60,000
Prepaid expenses................................. 117,542 126,294
------------------------
TOTAL CURRENT ASSETS 4,998,072 5,456,144
PROPERTY AND EQUIPMENT
Machinery, equipment, furniture and fixtures...... 4,339,265 4,430,999
Leasehold improvements........................... 306,374 306,374
Allowance for depreciation....................... (4,112,320) (3,985,257)
------------------------
533,319 752,116
INTANGIBLE ASSETS--NET............................. 24,468 36,692
------------------------
$5,555,859 $6,244,952
------------------------
------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................. $ 297,793 $ 371,955
Accrued expenses................................. 228,014 358,705
Deferred subscription revenue.................... 253,345 152,834
------------------------
TOTAL CURRENT LIABILITIES 779,152 883,494
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock-par value $.01 per share:
Authorized 100,000 shares; no shares issued
Common Stock-par value $.25 per share:
Authorized-3,000,000 shares; shares issued:
1996 and 1995-2,109,985; shares outstanding:
1996 and 1995-1,620,170........................ 527,497 527,497
Capital surplus.................................. 3,379,063 3,379,063
Retained earnings................................ 992,600 1,577,351
------------------------
4,899,160 5,483,911
Treasury stock at par:
1996 and 1995-489,815 shares................... (122,453) (122,453)
------------------------
4,776,707 5,361,458
------------------------
$5,555,859 $6,244,952
------------------------
------------------------
See notes to consolidated financial statements.
8
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended April 30, 1996 1995 1994
- --------------------------------------------------------------------------------
Net Sales--games............................ $3,395,421 $4,686,318 $3,278,212
--printing and envelope manufacturing..... 2,521,472 2,404,052 2,432,710
--publishing.............................. 601,810 264,422 --
----------------------------------
6,518,703 7,354,792 5,710,922
Cost of goods sold--games................... 1,669,114 2,331,201 2,314,325
--printing and envelope manufacturing..... 2,416,206 2,290,134 1,850,971
--publishing.............................. 615,419 457,314 --
----------------------------------
4,700,739 5,078,649 4,165,296
----------------------------------
Gross profit................................ 1,817,964 2,276,143 1,545,626
----------------------------------
Selling, general and
administrative expenses................... 2,064,042 2,534,362 1,417,514
Research and development.................... 367,329 542,777 302,098
----------------------------------
2,431,371 3,077,139 1,719,612
----------------------------------
Loss from operations........................ (613,407) (800,996) (173,986)
----------------------------------
Other:
Investment income........................ 65,705 85,670 76,795
Interest expense......................... -- -- (1,687)
Unrealized loss on marketable securities. (37,049) (22,036) --
----------------------------------
28,656 63,634 75,108
----------------------------------
Loss before income taxes................... (584,751) (737,362) (98,878)
----------------------------------
Benefit (provision) for income taxes
Current.................................. -- 44,800 4,427
Deferred................................. -- (32,000) --
----------------------------------
-- 12,800 4,427
----------------------------------
Net loss................................... $ (584,751) $ (724,562) $ (94,451)
----------------------------------
----------------------------------
Loss per share............................. $ (.36) $ (.45) $ (.06)
----------------------------------
----------------------------------
Weighted average number of shares
outstanding.............................. 1,620,170 1,626,118 1,642,456
==================================
See notes to consolidated financial statements
9
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Shares Common Capital Retained Treasury Stockholders'
Outstanding Stock Surplus Earnings Stock Equity
----------- -------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance--May 1, 1993 1,642,695 $527,497 $3,438,125 $2,396,364 $(116,822) $6,245,164
Purchase of Stock for
Treasury (525) (1,308) (131) (1,439)
Net Loss--1994 (94,451) (94,451)
----------------------------------------------------------------------------
Balance--April 30, 1994 1,642,170 527,497 3,436,817 2,301,913 (116,953) 6,149,274
Purchase of Stock for
Treasury (22,000) (57,754) (5,500) (63,254)
Net Loss--1995 (724,562) (724,562)
----------------------------------------------------------------------------
Balance--April 30, 1995 1,620,170 527,497 3,379,063 1,577,351 (122,453) 5,361,458
Net Loss--1996 (584,751) (584,751)
----------------------------------------------------------------------------
Balance--April 30, 1996 1,620,170 $527,497 $3,379,063 $ 992,600 $(122,453) $4,776,707
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
10
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Year Ended April 30, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... $ (584,751) $ (724,562) $ (94,451)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation.............................................. 135,393 132,264 177,139
Amortization.............................................. 15,399 15,455 13,976
(Loss) gain on disposal of property and equipment......... (9,100) 58,277 1,389
(Decrease) increase in accounts receivable allowances..... (152,000) 273,000 --
Provision for deferred income taxes....................... -- 32,000 --
Unrealized loss on marketable securities.................. 37,049 22,036 --
Changes in operating assets and liabilities:
(Increase) decrease in operating assets:
Accounts receivable, gross.............................. 646,685 (680,328) 19,936
Inventories............................................. 196,096 72,656 179,806
Refundable income taxes................................. 60,000 (44,800) 42,939
Prepaid expenses........................................ 8,752 (31,687) (18,921)
Increase (decrease) in operating liabilities:
Accounts payable........................................ (74,162) 87,693 5,688
Accrued expenses........................................ (130,691) 120,994 6,707
Deferred subscription revenue........................... 100,511 152,834 --
----------------------------------------
Total adjustments..................................... 833,932 210,394 428,659
----------------------------------------
Total cash provided by (used in) operating activities..... 249,181 (514,168) 334,208
----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........................... (16,596) (462,101) (51,498)
Purchases of intangible assets................................ (3,175) (7,529) (7,420)
Cash proceeds from disposal of property and equipment......... 109,100 -- 400
----------------------------------------
Total cash provided by (used in) investing activities..... 89,329 (469,630) (58,518)
----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of stock for treasury.............................. -- (63,254) (1,439)
Payments on short-term borrowings............................. -- -- (66,667)
----------------------------------------
Total cash used in financing activities................... -- (63,254) (68,106)
----------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 338,510 (1,047,052) 207,584
CASH AND CASH EQUIVALENTS--
BEGINNING OF YEAR............................................. 1,627,915 2,674,967 2,467,383
----------------------------------------
CASH AND CASH EQUIVALENTS--
END OF YEAR................................................... $1,966,425 $1,627,915 $2,674,967
----------------------------------------
----------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
Write-off of marketable securities............................. $ 102,128
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The consolidated financial statements of Monarch Avalon, Inc. and Subsidiary
(collectively, "the Company"), include Monarch Avalon, Inc. and its wholly-owned
subsidiary, Girls' Life, Inc.
Girls' Life, Inc. ("Girls' Life") was incorporated in December 1993 and
publishes a magazine for young girls ages seven to fourteen. Substantial
operations began in fiscal year 1995 with the release of its initial bi-monthly
publication in August 1994. Magazines are sold across North America through a
distributor and directly by Girls' Life through one and two year subscriptions.
Monarch Avalon, Inc. ("Monarch") consists of two divisions, games and
printing, and is incorporated in the State of Delaware. Monarch's game
division develops, manufactures and markets board and computer games. Games
are sold primarily through retail distributors across North America with some
export sales to foreign distributors in Japan, Europe, and Australia.
Monarch's printing division manufactures envelopes and provides printing and
graphic arts services to various commercial customers. Printing and envelope
sales are predominantly with commercial customers in various industries
located in the Mid-Atlantic region of the United States.
All material intercompany balances between Monarch and Girls' Life have been
eliminated in consolidation.
NOTE B--SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
REVENUE RECOGNITION: Girls' Life recognizes revenue related to subscriptions
for its magazine according to the ratio of magazines issued to total subscribed
issues. Deferred subscription revenue represents amounts collected for
subscriptions of the magazine not yet issued.
Revenues from the sale of products by Monarch are recorded upon shipment to the
customer. An accrual for customer returns primarily related to computer game
sales, is recorded based upon current sales, the timing of those sales and
historical experience.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS: For the purpose of reporting cash flows, the Company
considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE: Monarch's principal customers are distributors and retail
stores worldwide (games) and commercial entities (printing). Receivables are
generally due within 30 days. However, the Company grants seasonal and other
payment terms to certain of its customers. A certain customer of computer games
accounted for approximately 16% of net sales in 1995. No one customer accounted
for over 10% of sales in 1996.
Girl's Life-Registered Trademark- sells its magazine through a distributor and
direct individual subscriptions. Receivables consist of advertising income and
sales of magazines through the distributor for issues released prior to April
30.
INTANGIBLE ASSETS: Intangible assets consist of trademarks, copyrights and
goodwill and are amortized using the straight-line method over periods estimated
to be benefited. At April 30, 1996 and 1995, intangible assets are net of
accumulated amortization of $212,809 and $197,410 respectively.
INVENTORIES: The Company values inventories at the lower of cost (first-in,
first-out) or market.
PROPERTY AND EQUIPMENT: Property and equipment is carried at cost and
depreciation is
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
computed by the straight-line method over estimated useful lives.
FINANCIAL INSTRUMENTS: The current carrying value of accounts receivable and
current liabilities is a reasonable estimate of their fair value due to the
short-term nature of such accounts. Marketable securities are recorded at fair
value, based on available quoted prices on, or at the trading date nearest April
30.
MARKETABLE SECURITIES: The Company accounts for its investments in equity
securities under the accounting and reporting provisions of Statement of
Financial Accounting Standards No. 115 ("SFAS No. 115") which it adopted May 1,
1994. The Company has classified its investments as trading securities based on
its intended use. As such, unrealized holding gains and losses are included in
the consolidated statements of operations. During fiscal year 1996 certain
investments with no market value and a cost basis of approximately $102,000 were
written off. At April 30, 1996 and 1995, the cost of marketable securities
exceeded the market value by approximately $96,000 and $161,000, respectively.
There was no effect on the consolidated financial statements as a result of
adoption of SFAS No. 115.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs are charged to
expense when incurred.
INCOME TAXES: The Company provides for income taxes using Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS
No. 109") which requires an asset and liability approach to financial
accounting and reporting for income taxes (see Note D). Under SFAS No. 109,
deferred tax assets and liabilities are provided for differences between the
financial statement and tax basis of assets and liabilities that will result
in future taxes or deductible amounts. The deferred tax assets and
liabilities are measured using enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Income tax expense is computed as the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets or
liabilities.
EARNINGS PER SHARE: Primary earnings per share are based on the weighted
average number of shares of common stock outstanding during each year. Fully
diluted earnings per share data has not been reflected since the effect would be
either insignificant or antidilutive.
NEW ACCOUNTING PRONOUNCEMENTS: The Company is required to adopt Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
for the fiscal year ending April 30, 1997. SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based on the
fair value of the equity instrument awarded. Companies are permitted, however,
to continue to apply APB Opinion No. 25, which recognizes compensation cost
based on the intrinsic value of the equity instrument awarded. Management of
the Company is still assessing the options available to it under SFAS 123 and
considers its eventual effect on the financial statements to not be material.
NOTE C--ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
1996 1995
---- ----
Accounts Receivable-games $ 634,103 $1,040,021
-printing 235,054 520,614
-publishing 155,447 110,654
----------- -----------
1,024,604 1,671,289
Less:
Allowance for doubtful accounts (135,000) (85,000)
Allowance for customer returns (41,000) (243,000)
----------- -----------
$848,604 $1,343,289
----------- -----------
----------- -----------
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D--INCOME TAXES
A reconciliation of the (benefit) provision for income taxes in the financial
statements to the Federal statutory rates is as follows:
- ----------------------------------------------------------------------------
Year Ended April 30, 1996 1995 1994
- ----------------------------------------------------------------------------
Federal income tax at statutory rate (34)% (34)% (34)%
Net operating losses and other tax credits 33 30 25
Non-deductible items and other 1 2 5
----- ----- -----
- % (2)% (4)%
----- ----- -----
----- ----- -----
The components of the deferred income tax provision (benefit) before an
allocation of the valuation allowance are as follows:
- ----------------------------------------------------------------------------
Year Ended April 30, 1996 1995 1994
- ----------------------------------------------------------------------------
Depreciation $ (71,000) $ (1,000) $(11,000)
Uniform Capitalization - 3,000 (2,000)
Allowances for accounts receivable 59,000 (106,000) -
Amortization 1,000 - -
Unrecognized (recognized) benefit
of change in bases of assets 41,000 (9,000) -
Net operating loss and other
tax credit carryforward (342,000) (73,000) (41,000)
Other, net - 3,000 (2,000)
---------- ---------- ---------
$(312,000) $(183,000) $(56,000)
---------- ---------- ---------
---------- ---------- ---------
The deferred tax assets (liabilities) result from the following temporary
differences:
- ------------------------------------------------------------------------------
April 30, 1996 1995
- ------------------------------------------------------------------------------
Current:
Financial statement accruals, net $ 72,000 $113,000
Inventory reserves and uniform capitalization 150,000 150,000
Allowances for accounts receivable 69,000 128,000
-------- --------
291,000 391,000
-------- --------
Non-current:
Depreciation (11,000) (82,000)
Amortization 10,000 11,000
Net operating loss and other tax credits--carryforwards 455,000 113,000
--------- ---------
454,000 42,000
--------- ---------
Net deferred tax asset 745,000 433,000
Valuation allowance (745,000) (433,000)
--------- ---------
$ - $ -
--------- ---------
--------- ---------
The Company has incurred book and tax losses for the past four years, and
currently operations have been adversely affected by marketing and competitive
conditions (See Note G). As such, management has concluded that it is more
likely than not that the Company will not generate taxable income sufficient to
realize the tax benefit associated with future temporary differences and
operating loss carryforwards prior to their expiration; therefore, the Company
has recorded a full valuation reserve against the deferred tax asset. However,
if improvements in operations occur and future taxable income is realized, a
reduction in the valuation reserve will be necessary.
For tax purposes, the Company had available, at April 30, 1996, net operating
loss carryforwards for regular Federal income tax of approximately $1,068,000
which will expire in the years 2010 and 2011. There were no cash payments for
income taxes in 1996, 1995 and 1994. Cash received for income taxes refunded in
1996 was $60,000.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E--PROFIT SHARING PLAN
Substantially all of the Company's employees participate in a profit-sharing
plan. Contributions are determined by the results of operations and can be
increased at the discretion of the Board. There were no contributions in 1996,
1995 and 1994.
NOTE F--COMMITMENTS AND CONTINGENCIES
LEASES: The Company leases office, warehouse and manufacturing facilities.
Several of the leases provide for renewal options ranging from two to five
years. The Company generally must pay for property taxes, insurance and
maintenance costs related to the properties. Total rental expense for 1996,
1995 and 1994 was approximately $298,000, $315,000, and $317,000, respectively.
The future annual minimum rental commitments for non-cancellable operating
leases as of April 30, 1996 are as follows: 1997 through 1998--$297,000, 1999
through 2001--$107,000.
Certain facilities are leased annually for approximately $107,000 from the
Chairman of the Company and a member of his family.
LITIGATION: The Company is involved from time to time in legal actions arising
in its normal course of operations. The management of the Company believes that
the ultimate outcome of any such litigation will not have a material adverse
affect on the Company's financial position.
STOCK OPTIONS: During 1992 the Company's Chairman was granted a ten year option
to purchase up to 300,000 shares of the Company's stock at the greater of the
book or market value of the stock as of the date of exercise. Such option can
only be exercised in the event of the following:
- An individual or entity acquires the Company's common stock to the extent
in which they have greater than twenty percent of the total number of
outstanding shares of the Company's common stock.
- An individual or entity makes a tender offer for thirty percent or more of
the Company's outstanding common stock.
- An individual or entity proposes the election of a director or slate of
directors opposed to any directors or slate of directors proposed by the
management of the Company.
The Chairman may only exercise the option within sixty days following any of the
above events.
During the year ended April 30, 1996, the shareholders approved an extension
until September 30, 1996 of options granted, to the Company's President and one
outside director, to each purchase 40,000 unregistered shares of the Company's
common stock for $2.00 per share, a price approximating the fair value of these
shares at the dates of grant and extension. Grant of an option to purchase
40,000 unregistered shares of the Company's common stock for $2.00 per share was
also approved for another outside director. No options have been exercised,
expired or canceled during the year ended April 30, 1996. Total options
outstanding, including the option granted to the Company's Chairman above, total
420,000 shares.
NOTE G--FUTURE OPERATIONS
The Company has been adversely affected by marketing and competitive
conditions, including short shelf lives and high marketing expense for its
computer games, poor results from commercial printing, and uncertainty
regarding the future profitability of its start-up magazine. In view of
these developments, the Company is exploring strategic business and financial
alternatives. These could include, among other things, possible business
combinations, disposition of assets or divisions or other similar
transactions. No decisions have been reached as to any such alternatives,
and satisfactory arrangements are not assured.
NOTE H--SEGMENT INFORMATION
The Company operates in three industry segments: Games, Printing and
Publishing. Operating profit (loss) represents net sales less all identifiable
operating expenses. General corporate expenses, income taxes and other income
or expense are excluded from segment operations.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000)
1996 1995 1994
------- ------- ------
Net Sales
-Games $3,395 $4,686 $3,278
-Printing 2,521 2,404 2,433
-Publishing 602 264 -
------- ------- ------
Total $6,518 $7,354 $5,711
------- ------- ------
------- ------- ------
Operating (Loss) Profit:
-Games $ 369 $ 354 $ 20
-Printing (593) (437) 82
-Publishing (226) (428) (29)
------- ------- -------
Total (450) (511) 73
General Corporate Expenses, net (164) (290) (247)
Other income, net 29 64 75
------- ------- -------
Loss before income taxes $ (585) $ (737) $ (99)
------- ------- -------
------- ------- -------
($000)
1996 1995 1994
------- ------- ------
Indentifiable Assets:
-Games $2,357 $2,533 $2,678
-Printing 1,223 1,623 1,993
-Publishing 247 114 -
General Corporate 1,729 1,975 3,029
------- ------- -------
$5,556 $6,245 $6,700
------- ------- -------
------- ------- -------
Depreciation and Amortization:
-Games $ 50 $ 39 $ 51
-Printing 101 109 140
------- ------- -------
$ 151 $ 148 $ 191
------- ------- -------
------- ------- -------
Capital Expenditures:
-Games $ 12 $ 29 $ 34
-Printing 8 439 25
-Publishing - 2 -
------- ------- -------
$ 20 $ 470 $ 59
------- ------- -------
------- ------- -------
Corporate assets consist mainly of cash and cash equivalents, marketable
securities and certain other assets.
The Company sells its products in both the United States and foreign
countries. Export sales were approximately $561,000 for 1996, $797,000 for
1995, and $549,000 for 1994.
Intersegment sales or transfers were $737,000 for 1996, $956,000 for 1995 and
$787,000 for 1994. These sales are not included in the sales shown above.
Intersegment sales are accounted for at prices comparable to unaffiliated
customer sales. All segments share certain facilities and operate under common
management. These expenses are allocated ratably to each segment.
------------------------
CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS
A summary of the uaudited consolidated quarterly results of operations for the
years ended April 30, 1996 and 1995 is as follows:
Fiscal 1996
Three Months Ended
------------------------------------------------
July 31 October 31 January 31 April 30
------- ---------- ---------- --------
(Thousands of dollars, except per share data)
Net Sales $1,535 $1,774 $1,621 $1,588
Gross Profit 392 558 451 417
Net (Loss) Income (136) 4 (109) (344)
Net (Loss) Income (08) 0 (.07) (.21)
per Common Share
Fiscal 1995
Three Months Ended
------------------------------------------------
July 31 October 31 January 31 April 30
------- ---------- ---------- --------
(Thousands of dollars, except per share data)
Net Sales 1,371 $1,819 $2,443 $1,721
Gross Profit 317 682 1,034 243
Net (Loss) Income (240) 145 (14) (616)
Net (Loss) Income (.15) .09 (.01) (.38)
per Common Share
The fourth quarter results for fiscal 1995 reflect adjustments that the Company
made as a result of its estimate for customer returns related to computer game
sales, a provision for a loss on the sale of idle equipment subsequent to year-
end, and an increase in its valuation allowance for deferred income tax assets.
These adjustments decreased net income by $334,000 in the fourth quarter of
1995.
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors, Monarch Avalon, Inc. and
Subsidiary, Baltimore, Maryland.
We have audited the accompanying consolidated statements of financial
condition of Monarch Avalon, Inc. and Subsidiary as of April 30, 1996 and
1995, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the
period ended April 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Monarch Avalon, Inc. and
Subsidiary as of April 30, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended April 30,
1996, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- ----------------------------------
Deloitte & Touche LLP
Baltimore, Maryland
July 19, 1996
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART III
Information required in Part III, Items 9-12 is incorporated by
reference to the Company's proxy statement to be filed in
connection with the 1996 Annual Meeting of Stockholders.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
ITEM 10. EXECUTIVE COMPENSATION
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
17
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Listing of Exhibits:
3. (a) The Company's Restated Certificate of Incorporation
dated October 14, 1982 (incorporated by reference to
Exhibit 3(a) to the Company's Form 10-KSB for the
fiscal year ended April 30, 1995.)
(b) The Company's Restated and Amended Bylaws dated
August 17, 1981 (incorporated by reference to
Exhibit 3(b) to the Company's Form 10-KSB for the
fiscal year ended April 30, 1995.)
(c) Amendment to the Company's Restated and Amended Bylaws
(incorporated by reference to Exhibit 3(c) to the
Company's 10-K for the year ended April 30, 1986).
(d) Amendment to the Company's Restated and Amended Bylaws
(incorporated by reference to Exhibit 3(d) to the
Company's 10-K for the year ended April 30, 1990).
(e) Amendment dated November 6, 1987 to the Company's
Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3(d) to the Company's 10-Q for
the quarter ended October 31, 1987).
10. (a) Lease Agreement dated July 2, 1973 between the Company
as Lessee and A. Eric Dott and Esther J. Dott as
Lessors (incorporated by reference to Exhibit 10(a) to
the Company's Form 10-KSB for the fiscal year ended
April 30, 1995).
(b) Lease Renewal and Amendment of Lease Agreement dated
July 1, 1983 between the Company and A. Eric Dott and
Esther J. Dott, renewing and amending terms of the
Lease Agreement in Exhibit 10(a) (incorporated by
reference to Exhibit 10(b) to the Company's
Form 10-KSB for the fiscal year ended April 30, 1995).
(c) Option to Purchase Common Stock dated June 19, 1991
issued to A. Eric Dott, Chairman of the Company
(incorporated by reference to Exhibit 10(f) to the
Company's 10-K for the year ended April 30, 1992).
(d) Option to Purchase Common Stock dated July 19, 1994
issued to Jackson Y. Dott and Charles C. Baum
(incorporated by reference to Exhibit 10(e) to the
Company's 10-K for the year ended April 30, 1994).
(e) Option to Purchase Common Stock dated April 5, 1995
issued to Helen D. Bentley (incorporated by reference
to Exhibit 10(e) to the Company's Form 10-KSB for the
fiscal year ended April 30, 1995).
(f) Formula Stock Option Plan.
21. Subsidiaries of the Registrant (incorporated by
reference to Exhibit 21 to the Company's Form 10-KSB
for the fiscal year ended April 30, 1995).
27. Financial Data Schedule
(b) The Company did not file any report on Form 8-K during the
fourth quarter of the year ended April 30, 1996.
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
MONARCH AVALON, INC.
By: /s/ A. ERIC DOTT
----------------------------
A. Eric Dott, Chairman and Director
DATE: July 29, 1996
19
<PAGE>
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Date July 29, 1996 /s/ JACKSON Y. DOTT
---------------------- -----------------------------------------------
Jackson Y. Dott, President (Principal Executive
Officer), Treasurer and Director
Date July 29, 1996 /s/ HELEN DELICH BENTLEY
---------------------- -----------------------------------------------
Helen Delich Bentley, Director
Date July 29, 1996 /s/ STEVEN M. SZELELY
---------------------- -----------------------------------------------
Steven M. Szekely, Executive Vice-President
and Secretary
Date July 29, 1996 /s/ A. ERIC DOTT
---------------------- -----------------------------------------------
A. Eric Dott, Chairman and Director
Date July 29, 1996 /s/ MARSHALL CHADWELL
---------------------- -----------------------------------------------
Marshall Chadwell, Controller
(Principal Financial Officer)
20
<PAGE>
EXHIBIT INDEX
Exhibit Number Page
- -------------- ----
10(f) -- Formula Stock Option Plan
27 -- Financial Data Schedule
<PAGE>
Exhibit 10(f)
MONARCH AVALON, INC.
FORMULA STOCK OPTION PLAN
The definitive proxy statement (the "Proxy Statement") of Monarch
Avalon, Inc. (the "Company") with respect to the Annual Meeting of
Stockholders of the Company to be held on October 6, 1995, sets forth the
terms of certain stock options (the "Options") which will be granted (or the
expiration dates of which will be extended), subject to approval of the
Stockholders at the Annual Meeting or any adjournment thereof. The Proxy
Statement description of the Options, their exercise price, duration and
other matters, including Annexes A and B thereof, constitutes a formula stock
option plan which the Board of Directors of the Company has adopted and
hereby confirms (the "Plan") pursuant to Rule 16b-3 (as in effect immediately
prior to May 1, 1991) under the Securities Exchange Act of 1934 and the
phase-in provisions regarding certain amendments to said Rule 16b-3. The
following matters concerning the Plan are hereby confirmed and agreed.
1. THE OPTIONS. The Options and grants or extensions to be approved
by the Stockholders are as follows, as more fully set forth in the Proxy
Statement: grant of Option to Helen D. Bentley to acquire 40,000 shares of
Common Stock of the Company at an exercise price of $2.00 per share, such
option to expire on September 30, 1996; extension of term until September 30,
1996 of Option granted to Jackson Y. Dott to acquire 40,000 shares of Common
Stock of the Company at an exercise price of $2.00 per share; and extension
of term until September 30, 1996 of Option granted to Charles C. Baum to
acquire 40,000 shares of Common Stock of the Company at an exercise price of
$2.00 per share. The total number of shares of Common Stock for which
Options may be granted or extended under the Plan is 120,000 shares. No
other stock options or securities may be issued under the Plan. The only
Plan participants are current Directors of the Company.
2. LIMITATIONS. No Option shall be transferable by the optionee other
than by will or the laws of descent and distribution (or as may otherwise be
permitted by Rule 16b-3). During the lifetime of an optionee, no Option
shall be exercisable except by the optionee or the optionee's guardian or
legal representative. No Option may be exercised within six months after
October 6, 1995. Optionees acknowledge that the shares of Common Stock
issuable upon exercise of the Options have not been registered under the
Securities Act of 1933 or state securities laws and may not be resold in the
absence of such registration or applicable exemption therefrom.
<PAGE>
IN WITNESS WHEREOF, this instrument is executed by the Company and each
Optionee.
Monarch Avalon, Inc.
By: /s/ A. ERIC DOTT
-----------------------------------
A. Eric Dott, Chairman
OPTIONEES
/s/ HELEN D. BENTLEY
-----------------------------------
Helen D. Bentley
/s/ JACKSON Y. DOTT
-----------------------------------
Jackson Y. Dott
Date: October 6, 1995 /s/ CHARLES C. BAUM
-----------------------------------
Charles C. Baum
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF MONARCH AVALON, INC. & SUBSIDIARY AS OF AND
FOR THE YEAR ENDED APRIL 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-1-1995
<PERIOD-END> APR-30-1996
<CASH> 1,966,425
<SECURITIES> 124,195
<RECEIVABLES> 1,024,504
<ALLOWANCES> 176,000
<INVENTORY> 1,941,306
<CURRENT-ASSETS> 4,995,072
<PP&E> 4,645,839
<DEPRECIATION> (4,112,320)
<TOTAL-ASSETS> 5,555,859
<CURRENT-LIABILITIES> 779,152
<BONDS> 0
0
0
<COMMON> 527,497
<OTHER-SE> 4,249,210
<TOTAL-LIABILITY-AND-EQUITY> 5,555,859
<SALES> 6,518,703
<TOTAL-REVENUES> 6,518,703
<CGS> 4,700,739
<TOTAL-COSTS> 7,132,110
<OTHER-EXPENSES> (28,656)
<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> 0
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