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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, 1996 COMMISSION FILE NO. 0-8512
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MONARCH AVALON, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-1073628
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4517 Harford Road, Baltimore, Maryland 21214
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(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 410-254-9200
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Not applicable
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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 X NO
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As of July 31, 1996, 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
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
MONARCH AVALON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
July 31, April 30,
1996 1996
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,675,014 $1,966,425
Investments (at lower of cost or market) 124,195 124,195
Accounts receivable, net 824,770 848,604
Inventories, net 2,089,318 1,941,306
Other current assets 158,078 117,542
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TOTAL CURRENT ASSETS 4,871,375 4,998,072
PROPERTY AND EQUIPMENT 4,664,078 4,645,639
Less allowance for depreciation (4,146,068) (4,112,320)
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518,010 533,319
OTHER ASSETS AND DEFERRED CHARGES 22,172 24,468
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$5,411,557 $5,555,859
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 266,803 $ 297,793
Accrued expenses 255,086 228,014
Deferred subscription revenues 290,695 253,345
TOTAL CURRENT LIABILITIES 812,584 779,152
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--2,109,985; shares outstanding
1,620,170 on July 31, 1996 and
April 30, 1996 527,497 527,497
Capital surplus 3,379,063 3,379,063
Retained earnings 814,866 992,600
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4,721,426 4,899,160
Treasury stock at par--489,815 shares on
July 31, 1996 and April 30, 1996 (122,453) (122,453)
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4,598,973 4,776,707
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$5,411,557 $5,555,859
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See notes to Consolidated Financial Statements.
2
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MONARCH AVALON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
July 31,
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1996 1995
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(000's omitted, except per share data)
Net Sales $ 1,177 $ 1,535
Cost of goods sold 940 1,143
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Gross profit 237 392
Selling, general and administrative expenses 365 444
Research and development 92 97
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457 541
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Loss before other income and income taxes (220) (149)
Other income, net 43 13
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Loss before income taxes (177) (136)
Provision for Income taxes 0 0
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Net Loss $ (177) $ (136)
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Loss per share $ (.11) $ (.08)
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Weighted average shares outstanding 1,620,170 1,620,170
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See notes to Consolidated Financial Statements.
3
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MONARCH AVALON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
July 31,
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1996 1995
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(000's omitted, except per share data)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(177) $ (136)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 36 109
Unrealized loss on investments 0 2
Changes in accounts receivable,
inventories, other assets, accounts
payable, accrued expenses and deferred
subscription revenue (132) (117)
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Net cash used in operating activities (273) (142)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (18) (12)
Cash proceeds from disposal of property
and equipment 0 100
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Net cash provided by (used in) investing
activities (18) 88
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Net decrease in cash and cash equivalents (291) (54)
Cash and cash equivalents at beginning
of period 1,966 1,628
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Cash and cash equivalents at end of
period $1,675 $1,574
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See notes to Consolidated Financial Statements.
4
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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 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 July 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:
July 31, 1996 April 30, 1996
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(000's omitted)
Doubtful accounts $135 $135
Customer returns 41 41
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$176 $176
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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:
July 31, 1996 April 30, 1996
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(000's omitted)
Raw materials $1,001,161 $ 910,722
Work in progress $ 115,938 $ 113,756
Finished goods 972,219 916,828
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$2,089,318 $1,941,306
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The above components are shown net of lower of cost of market reserves
of $350,000 at July 31, 1996 and April 30, 1996. The Company values its
inventories at the lower of cost (first-in, first-out) or market.
5
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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-Registered Trademark-magazine) are not seasonal.
The timing of new releases of the Company's games also may affect sales
in the games division.
RESULTS FOR THE FIRST QUARTER OF FISCAL YEAR 1997 AND 1996
Net sales decreased by $358,000 or 23% in the first quarter of fiscal 1997 as
compared to the first quarter of fiscal 1996. Sales in the games division
decreased by $255,000 or 32% in the first quarter of fiscal 1997 compared to
the first quarter of fiscal 1996 as a result of no new releases of computer
games in this quarter of fiscal 1997 compared to the first quarter in 1996 and
revised estimates of returns of computer games sold. The sales trend is for
new releases to have high volume in the first three months after the release
date. Sales in the printing division decreased by $87,000 in the first quarter
of fiscal 1997 or 15% from the first quarter of fiscal 1996. Sales of Girls'
Life-Registered Trademark-magazine in the first quarter of fiscal 1997 accounted
for $127,000 or 11% of total net sales as compared to $145,000 or 9% of total
sales for the first quarter of fiscal 1996. Subscriptions and advertising
revenues from Girls' Life-Registered Trademark-have continued to increase.
Gross profit decreased by $155,000 or 40% during the first quarter of fiscal
1997. Consolidated gross margin was 20% of net sales during the first quarter
of fiscal 1997 as compared to 26% during the first quarter of fiscal 1996.
The decrease in gross margin primarily relates to decline in computer game
sales. Game sales, particularly computer game sales, carry higher gross
margins than printing and magazine sales.
Operating expenses were 39% of net sales in the first quarter of fiscal
1997 as compared to 35% in the first quarter of fiscal 1996. Operating
expenses for the first quarter of fiscal 1997 decreased by $84,000 or
16% from the same period in fiscal 1996, primarily because of lower
advertising and royalty expenses associated with computer game sales.
Other (expense) income, which consists of interest income, dividends from
investments and unrealized losses on investments, was $43,000 which included
$25,000 from the sale of a trademark for the first quarter of fiscal 1997
as compared to $13,000 in the first quarter of fiscal 1996. The increase
also resulted from higher interest income on cash balances for the quarter.
6
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LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1996, the Company had cash and cash equivalents of $1,675,000, a
decrease of $291,000 from the amount at April 30, 1996. The decrease resulted
from cash used in operations of $273,000 and purchases of equipment in the
amount of $18,000. 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, 1996, the Company has no debt with third party lenders.
In September 1996, Girls' Life announced a joint venture with Girl Scouts of
the U.S.A. that will give it direct access to 920,000 more women and girls.
The magazine, which currently sells about 175,000 copies of the bimonthly
magazine, will have access to the Girl Scouts' mailing list, which includes
860,000 girls and 60,000 troop leaders.
In view of the potential revenue expected to be generated by Girls' Life and
the new computer and board games expected to be released in the coming months,
the Company is not currently active in exploring business or financial
alternatives such as business combinations, disposal of divisions or other
similar transactions.
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 5
NONE / NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS FOR FORM 8-K
(a) Exhibits
Number Description
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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, 1996.
7
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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 9/13/96 /s/ A. Eric Dott
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A. Eric Dott
Chairman of Board
(Principal Executive Officer)
/s/ Marshall Chadwell
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Marshall Chadwell
Chief Financial Officer
(Principal Accounting and
Financial Officer)
8
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EXHIBIT INDEX
Exhibit No. Description
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27 Financial Data Schedule
9
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MONARCH
AVALON, INC.'S UNUAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED JULY 31,
1996, 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-30-1996
<PERIOD-END> JUL-31-1996
<CASH> 1,675
<SECURITIES> 124
<RECEIVABLES> 825
<ALLOWANCES> 0
<INVENTORY> 2,089
<CURRENT-ASSETS> 4,871
<PP&E> 4,664
<DEPRECIATION> 4,146
<TOTAL-ASSETS> 5,366
<CURRENT-LIABILITIES> 813
<BONDS> 0
0
0
<COMMON> 527
<OTHER-SE> 4,072
<TOTAL-LIABILITY-AND-EQUITY> 5,412
<SALES> 1,177
<TOTAL-REVENUES> 1,177
<CGS> 940
<TOTAL-COSTS> 1,397
<OTHER-EXPENSES> 43
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (177)
<INCOME-TAX> 0
<INCOME-CONTINUING> (177)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (177)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
