UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR QUARTER ENDED OCTOBER 31, 1996 COMMISSION FILE NO. 0-8512
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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)
4517 Harford Road, Baltimore, Maryland 21214
- ------------------------------------------------------ ---------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code 410-254-9200
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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 past 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 [ X ] NO [ ]
As of October 31, 1996, the number of shares outstanding of the issuer's common
stock was 1,619,820 shares.
Transitional Small Business Issue Format (check one): YES [ ] NO [ X ]
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
MONARCH AVALON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<CAPTION>
October 31, April 30,
1996 1996
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,625,398 $1,966,425
Investments (at lower of cost or market) 124,195 124,195
Accounts receivable, net 1,416,100 848,604
Inventories, net 2,108,562 1,941,306
Other current assets 127,164 117,542
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TOTAL CURRENT ASSETS 5,401,419 4,998,072
PROPERTY AND EQUIPMENT 4,684,895 4,645,639
Less allowance for depreciation (4,179,820) (4,112,320)
---------- ----------
505,075 533,319
OTHER ASSETS AND DEFERRED CHARGES 23,296 24,468
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TOTAL ASSETS $5,929,790 $5,555,859
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 479,005 $ 297,793
Accrued expenses 417,177 228,014
Deferred subscription revenues 323,634 253,345
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TOTAL CURRENT LIABILITIES 1,219,816 779,152
STOCKHOLDERS' EQUITY
Preferred Stock - par value $.01 per share:
Authorized 200,000 shares; no shares
issued
Common Stock - par value $.25 per share:
Authorized 3,000,000 shares; shares
issued - 2,109,985; shares outstanding
1,619,820 on October 31, 1996 and
1,620,170 on April 30, 1996 527,497 527,497
Capital surplus 3,378,363 3,379,063
Retained earnings 926,655 992,600
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4,832,515 4,899,160
Treasury stock at par - 490,165 on
October 31, 1996 and 489,815 on
April 30, 1996 (122,541) (122,453)
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4,709,974 4,776,707
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,929,790 $5,555,859
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<FN>
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
MONARCH AVALON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
---------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 2,503 $ 1,774 $ 3,680 $ 3,309
Cost of goods sold 1,584 1,216 2,524 2,359
------- ------- ------- -------
Gross profit 919 558 1,156 950
Selling, general and
administrative expenses 731 474 1,096 918
Research and development 93 96 186 193
------- ------- ------- -------
Operating expenses 824 570 1,282 1,111
------- ------- ------- -------
Income (loss) from operations 95 (12) (126) (161)
Other income, net 17 16 60 29
------- ------- ------- -------
Income (loss) before income 112 4 ( 66) (132)
taxes
Provision for income taxes 0 0 0 0
------- ------- ------- -------
Net income (loss) 112 4 ( 66) (132)
------- ------- ------- -------
Income (loss) per share $ 0.07 $ 0 $ (0.04) $ (0.08)
------- ------- ------- -------
Weighted average shares
outstanding 1,619,961 1,620,170 1,620,065 1,620,170
--------- --------- --------- ---------
<FN>
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
MONARCH AVALON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Six Months Ended
October 31,
----------------
1996 1995
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(000's omitted)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from operations $ ( 66) $ (132)
------- -------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 72 133
Unrealized loss on investments 0 2
Changes in accounts receivable,
inventories, other assets, accounts
payable, accrued expenses and
deferred subscription revenue (303) 77
------ ------
Net cash used in operating activities (297) 80
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (43) (20)
Cash proceeds from disposal of property
and equipment 0 100
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Net cash provided by (used in) (43) 80
investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock ( 1) 0
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Net cash provided by (used in) ( 1) 0
financing activities
------ ------
Net decrease in cash and cash equivalents (341) 0
Cash and cash equivalents at beginning of
period 1,966 1,628
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Cash and cash equivalents at end of period $1,625 $1,788
------ ------
<FN>
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
MONARCH AVALON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include Monarch
Avalon, Inc. ("Monarch") and its wholly-owned subsidiary, Girls' Life, Inc.
(Monarch and Girls' 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
October 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending April 30, 1997. 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, 1996.
NOTE B - ACCOUNTS RECEIVABLE
Accounts receivable are net of the following allowances:
October 31, 1996 April 30, 1996
---------------- --------------
(000's omitted)
Doubtful accounts $135 $135
Customer returns 172 41
---- ----
$307 $176
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:
October 31,1996 April 30, 1996
--------------- --------------
(000's omitted)
Raw materials $ 1,042 $ 910
Work in progress 32 114
Finished goods 1,035 917
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$ 2,109 $1,941
The above components are shown net of lower of cost of market reserves of
$350,000 at October 31, 1996 and April 30, 1996. The Company values its
inventories at the lower of cost (first-in, first-out) or market.
<PAGE>
ITEM II MONARCH AVALON, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of this discussion references to "fiscal 1997" are to the fiscal
year ending April 30, 1997, and references to "fiscal 1996" are to the fiscal
year ended April 30, 1996.
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' Life magazine) are not seasonal. The timing of new releases of the
Company's games also may affect sales in the game division.
RESULTS FOR THE SECOND QUARTER OF FISCAL YEAR 1997 AND 1996
Net sales increased by $729,000 or 41% in the second quarter of fiscal 1997 as
compared to the second quarter of fiscal 1996. Sales in the games division
increased by $465,000 or 50% in the second quarter of fiscal 1997 compared to
the second quarter of fiscal 1996 as a result of the increase in the number of
new releases of computer games in the second quarter of fiscal 1997 compared to
the second quarter in 1996. The allowance for customer returns was increased by
$131,000 for the quarter because of the new releases sold. Sales in the
printing division increased by $69,000 in the second quarter of fiscal 1997 or
10% from the first quarter of fiscal 1996. Sales of Girls' Life magazine in the
second quarter of fiscal 1997 accounted for $353,000 or 14% of total net sales
as compared to $159,000 or 10% of total sales for the second quarter of fiscal
1996. Subscriptions, newstand sales and advertising revenues from Girls' Life
have continued to increase.
Gross profit increased by $361,000 or 65% during the second quarter of fiscal
1997 compared to the second quarter of fiscal 1996. Consolidated gross margin
was 37% of net sales during the second quarter of fiscal 1997 as compared to 31%
during the second quarter of fiscal 1996. The increase in gross margin
primarily relates to the increase in computer game sales.
Operating expenses were 33% of net sales in the second quarter of fiscal 1997 as
comparted to 32% in the second quarter of fiscal 1996. Operating expenses for
the second quarter of fiscal 1997 increased by $254,000 or 45% from the same
period in fiscal 1996, primarily because of higher advertising expenses
associated with computer game sales and higher promotional costs for Girls' Life
magazine.
<PAGE>
RESULTS FOR THE FIRST SIX MONTHS OF FISCAL YEAR 1997 AND 1996
Net sales increased by $371,000 or 11% in the six months ended October 31, 1996
as compared to the same period in fiscal 1996. Sales in the game division for
the first six months of fiscal 1997 increased by $210,000 or 12% compared to the
same period in fiscal 1996 as a result of new computer game releases in the
first and second quarters of fiscal 1997. Sales in the printing division for the
first six months of fiscal 1997 decreased by $18,000 or 1% from the same period
in fiscal 1996. Sales of Girls' Life magazine of $480,000 in the six months
ended October 31, 1996 accounted for 13% of total net sales during the period,
compared to $302,000 or 9% for the same period in fiscal year 1996.
Gross profit increased by $206,000 or 22% during the first six months of fiscal
1997 compared to the same period in fiscal 1996. Consolidated gross margin was
31% of net sales during the six month period ended October 31, 1996 as compared
to 29% for the same period during fiscal 1996. The increase in gross margin
primarily related to increases in game sales overall, which carry higher gross
margins than printing sales.
Operating expenses increased $171,000 or 15% for the first six months of fiscal
1997 as compared to the same period in fiscal 1996. Operating expenses
represented 35% and 34% of net sales for the six months ended October 31, 1996
and 1995, respectively. The increase in operating expenses primarily relates to
higher advertising expenses associated with computer games sales and higher
promotional costs for Girls' Life magazine.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1996, the Company has cash and cash equivalents of approximately
$1,625,000, a decrease of $341,000 from the amount at April 30, 1996. The
decrease resulted from cash used in operations of $297,000, purchases of
equipment in the amount of $43,000 and the purchase of treasury stock in the
amount of $1,000. The Company's cash and cash equivalents are subject to
variation based upon the timing of receipts and the payment of payables.
At October 31, 1996, the Company has no debt with third party lenders.
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 3 AND 5
NONE / NOT APPLICABLE
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders was held on October 4, 1996.
Results of the voting on the election of directors:
Directors FOR WITHHELD
- --------- --- --------
A. Eric Dott 1,111,460 45,718
David F. Gonano 1,111,610 45,568
Jackson Y. Dott 1,157,178 0
Helen Delich Bentley 1,110,235 46,943
Results of the voting on grant of stock options to Helen Delich
Bentley, David F. Gonano and Jackson Y. Dott:
FOR AGAINST WITHHELD
--- ------- --------
900,983 114,674 1,760
Results of the voting on the ratification of the appointment of
Deloitte & Touche LLP as the independent accountants for the fiscal year ending
April 30, 1997:
FOR AGAINST WITHHELD
--- ------- --------
1,151,725 47,653 1,760
There were no broker non-votes on these matters.
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS FOR FORM 8-K
(a) Exhibits
Number Description
------ -----------
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports have been filed on Form 8-K during this
quarter.
<PAGE>
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 12/16/96 By /s/ A. Eric Dott
-----------------------------
A. Eric Dott
Chariman of the Board
Date 12/16/96 /s/ A. Eric Dott
-----------------------------
A. Eric Dott
Chairman of the Board
(Principal Executive Officer)
Date 12/16/96 /s/ Marshall Chadwell
-----------------------------
Marshall Chadwell
Chief Financial Officer
(Principal Accounting and
Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
Article 5
The schedule contains summary financial information extracted from Monarch
Avalon, Inc.'s unaudited financial statements for the quarter ended October 31,
1996, and is qualified in its entirety by reference to such financial statements
and the notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Apr-30-1997
<PERIOD-START> May-01-1996
<PERIOD-END> Oct-31-1996
<CASH> 1,625
<SECURITIES> 124
<RECEIVABLES> 1,416
<ALLOWANCES> 176
<INVENTORY> 2,109
<CURRENT-ASSETS> 5,401
<PP&E> 4,685
<DEPRECIATION> 4,180
<TOTAL-ASSETS> 5,930
<CURRENT-LIABILITIES> 1,220
<BONDS> 0
0
0
<COMMON> 527
<OTHER-SE> 4,182
<TOTAL-LIABILITY-AND-EQUITY> 5,930
<SALES> 2,503
<TOTAL-REVENUES> 2,520
<CGS> 1,584
<TOTAL-COSTS> 2,408
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 112
<INCOME-TAX> 0
<INCOME-CONTINUING> 112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
