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 JULY 31, 1999 COMMISSION FILE NO. 0-8512
------------------ --------
MONARCH SERVICES, INC.
- ------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 52-1073628
- --------------------------------- ------------------------------
(State or other jurisdiction of (IRS EmployerIdentification 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
-------------
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 July 31, 1999, 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 SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<CAPTION>
July 31, 1999
-------------
(000's Omitted)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $7,209
Accounts receivable, net 201
-----
7,410
Income tax receivable 230
Other current assets 125
-----
TOTAL CURRENT ASSETS 7,765
PROPERTY AND EQUIPMENT 836
Less accumulated depreciation (602)
-----
234
-----
INTANGIBLE ASSETS, NET 2
-----
DEFERRED TAX ASSET 79
ASSETS HELD FOR SALE 248
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$8,328
-----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 86
Accrued expenses 417
Income taxes payable 165
Deferred subscription revenues 1,370
------
TOTAL CURRENT LIABILITIES 2,038
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
1,619,820 527
Capital surplus 3,378
Retained earnings 2,507
------
6,412
Treasury stock at par - 490,165 shares (122)
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TOTAL STOCKHOLDERS' EQUITY 6,290
-----
$8,328
-----
<FN>
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
MONARCH SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three Months Ended
July 31,
------------------
1999 1998
---- ----
(000's omitted, except per share data)
<S> <C> <C>
Net Sales - publishing $ 603 $ 497
Cost of goods sold - publishing 488 440
-------------------------
Gross profit from continuing
operations 115 57
-------------------------
Selling, general and
administrative expenses 141 50
-------------------------
(Loss) gain from continuing
operations before other
income and income taxes (26) 7
Other income:
Investment and interest income 72 10
other 38 0
-------------------------
Gain from continuing operations
before income taxes 84 17
Income tax expense 30 0
-------------------------
Income from continuing operations 54 17
-------------------------
Discontinued Operations:
Operating loss from
games division 0 (449)
Operating loss from printing and
envelope division (net of income
tax benefit of $143) (279) (144)
Estimated loss on disposal of printing
and envelope and games segments
(net of income tax benefit of $117) (228) 0
--------------------------
Loss from discontinued operations (507) (593)
--------------------------
Net loss (453) (576)
--------------------------
Net Earnings (loss) per common
share - basic and diluted:
Income from continuing
operations per share $ .03 $ .01
Loss from discontinued
operations (.31) (.37)
--------------------------
Net loss per common share
- basic and diluted $ (.28) $ (.36)
--------------------------
Weighted average number of
shares outstanding 1,619,820 1,619,820
--------------------------
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
MONARCH SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
July 31,
------------------
1999 1998
---- ----
(000's Omitted)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (453) $ (576)
Adjustments to reconcile net loss ------ ------
to net cash used in operating
activities:
Depreciation and amortization 30 41
Gain on disposal of equipment (27) 0
Changes in accounts receivable,
inventories, other assets,
assets held for sale, accounts
payable, accrued expenses,
deferred subscription revenue
and income tax payable 332 134
------ ------
Total cash used in operating activities (118) (401)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (21) 0
Cash proceeds from disposal of property
and equipment 27 0
------ ------
Total cash provided by investing
activities 6 0
------ ------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (112) (401)
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 7,321 1,738
------ ------
CASH AND CASH EQUIVALENTS
END OF YEAR $ 7,209 $ 1,337
------ ------
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
MONARCH SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include Monarch
Services, Inc. (Monarch), formerly Monarch Avalon, Inc., 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 and accruals for the discontinued
segments) 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, 1999 are not necessarily indicative of the results that may be expected for
the year ending April 30, 2000. 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, 1999.
Girls' Life magazine subscriptions are sold through traditional sources such as
direct-mail solicitation, insert cards and via subscription agents. The
magazine is also sold on newsstands and subscriptions can be obtained or renewed
through the internet on the Girls' Life website. Newsstand copies are
distributed nationally by Ingram Periodicals Inc. and International Periodical
Distributors. Newsstand copies are distributed nationally and internationally
by Warner Publisher Services. The Company has entered into a joint venture with
the Girl Scouts of the U.S.A. through which the Company has direct access to the
Girl Scout's mailing list of over 2,000,000 girls.
The basic domestic price of a one year Girls' Life subscription is $17.85. The
suggested retail price of a single issue of Girls' Life in the United States at
the newsstand is $2.95.
The average total distribution per issue during fiscal year 1999 was as set
forth in the following table.
Distribution Channel Number of Magazines Distributed
- -------------------- -------------------------------
Newsstand Sales 60,000
Subscription Sales 233,000
---------
Total Paid Circulation 293,000
Complementary Copies 1,000
The following table sets forth the average number of subscriptions
geographically sold per issue, internationally and domestically during FY 1999.
Geographic Distribution Number of Magazines Distributed
- ----------------------- -------------------------------
United States 229,000
International 4,000
<PAGE>
NOTE B - DISCONTINUED OPERATIONS
SALE OF GAMES DIVISION:
On October 27, 1998, the Company sold substantially all the assets of the games
division to a subsidiary of Hasbro, Inc. for $6,000,000 in cash. The assets
sold included trademarks, copyrights and other intellectual property rights,
inventory and tooling. The operating results of the games division have been
classified as discontinued operations for all periods presented in the
consolidated statements of operations.
Total assets from the games division held for sale at April 30, 1999 were
$89,000. Approximately $18,000 of the $89,000 were sold as of July 31, 1999.
Approximately $71,000 remained unsold as of July 31, 1999. These assets have
been written down to their estimated net realizable value.
Net sales and income from discontinued operations of the games division are as
follows:
Quarter Ended July 31,
1999 1998
- -----------------------------------------------------------
Net sales $ 0 $ 214
Estimated loss on disposal
of games segment (7) 0
Loss from discontinued
operations 0 (449)
Net assets of discontinued operations of the games division are as follows:
Quarter Ended July 31,
1999
- ---------------------------------------------------
Net assets held for sale $ 64
<PAGE>
CLOSING OF PRINTING AND ENVELOPE DIVISION:
Effective August 20, 1999, the Company closed the printing and envelope division
due to increased losses since last year's sale of the games division. The
machinery and equipment and inventories of the printing and envelope division
are expected to be sold in the near future.
Net inventories from the printing and envelope division held for sale at July
31, 1999 were approximately $183,000. The inventories will be sold privately or
auctioned off in November 1999. These inventories have been written down to
their estimated net realizable value.
Net machinery and equipment from the printing and envelope division held for
sale at July 31, 1999 was approximately $109,000. The machinery and equipment
will be auctioned off in November 1999.
Due to the closing of the printing and envelope division, wages of approximately
$87,000 were accrued as of July 31, 1999. This included two weeks severence pay
and accumulated vacation and sick days for the 41 employees terminated.
Accured rent of $220,000 has been recorded for the portion of the Company's
office, warehouse, and manufacturing facilities which were utilized by the
discontinued segments.
Net assets from discontinued operations of the printing and envelope division
are as follows:
Net assets held for sale $ 184,000
Net sales and income from discontinued operations of the printing and envelope
division are as follows:
Quarter Ended July 31,
1999 1998
- -------------------------------------------------------------
Net sales $ 392 $ 569
Estimated loss on disposal
of printing and envelope
segment (221) 0
Loss from discontinued
operations (279) (144)
<PAGE>
NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at July 31, 1999:
Accounts Receivable-Games 42,063
-Printing $ 206,777
-publishing 114,482
-----------
Less: 363,322
Allowance for doubtful accounts (162,491)
-----------
$ 200,831
===========
The Accounts Receivable-Games in the amount of $42,063 is fully reserved in the
Allowance for doubtful accounts.
NOTE D - 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.
Inventories in the amount of $183,000 of the printing and envelope division
will be sold or auctioned off in the near future.
The major components of the printing and envelope inventories consist of the
following:
July 31,1999 April 30, 1999
------------- --------------
(000's omitted)
Raw materials $ 149 $ 161
Work in progress 25 49
Finished goods 29 30
------ ------
$ 203 $ 240
The above components are shown net of lower of cost or market reserves of
$65,000 at July 31, 1999 and April 30, 1999. On October 27, 1998, the Company
sold substantially all the assets of the Games division. All games inventories
were transferred to Hasbro, Inc. as part of the sales agreement. The remaining
inventories at July 31, 1999 relate entirely to the printing and envelope
segment of Monarch Services, Inc. The Company values its inventories at the
lower of cost (first-in, first-out) or market.
<PAGE>
ITEM II MONARCH SERVICES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of this discussion references to fiscal 2000 are to the fiscal year
ending April 30, 2000, and references to fiscal 1999 are to the fiscal year
ended April 30, 1999.
CERTAIN CAUTIONARY INFORMATION
In connection with the Private Securities Litigation Reform Act of 1995 (the
"Litigation Reform Act"), the Company is hereby disclosing certain cautionary
information to be used in connection with written materials (including this
Report on Form 10-QSB) and oral statements made by or on behalf of its employees
and representatives that may contain forward-looking statements within the
meaning of the Litigation Reform Act. Such statements consist of any statement
other than a recitation of historical fact and can be identified by the use of
forward-looking terminology such as may, expect, anticipate, estimate or
continue or the negative thereof or other variations thereon or comparable
terminology. The listener or reader is cautioned that all forward-looking
statements are necessarily speculative and there are numerous risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements. The discussion
contained in the Company's Annual Report on Form 10-KSB for the year ended April
30, 1999 and incorporated herein by reference highlights some of the more
important risks identified by management, but should not be assumed to be the
only factors that could affect future performance. Included in these risks is
the Company's history of losses, its fluctuations in operating results,
competition and other risks set forth herein and in the Company's annual report
on Form 10KSB for the year ended April 30, 1999. The reader or listener is
cautioned that the Company does not have a policy of updating or revising
forward-looking statements and thus he or she should not assume that silence by
management over time means that actual events are bearing out as estimated in
such forward-looking statements.
<PAGE>
RESULTS OF OPERATIONS
Monarch Services, Inc. consists of one subsidiary, Girls' Life, Inc., that
publishes a magazine.
RESULTS FOR THE FIRST QUARTER OF FISCAL YEAR 2000 AND 1999
Sales of the Publishing division in the first quarter of fiscal 2000 increased
by $106,000 or 21% from the first quarter of fiscal 1999. The increase in sales
of the Publishing division relates primarily to the increase in promotions and
direct mailing advertising of the magazine and increased revenue from newsstand
sales and advertising.
Cost of goods sold as a percent of sales was 81% in the first quarter of fiscal
2000 compared to 89% in the first quarter of fiscal 1999. The decrease in
fiscal 2000 was due to the increased subscription and newsstand sales and
increased income from advertising.
Gross profit increased by $58,000 or 102% during the first quarter of fiscal
2000 compared to the first quarter of fiscal 1999. Gross margin was 19% during
the first quarter of fiscal 2000 as compared to 11% during the first quarter of
fiscal 1999.
Selling, general and administrative expenses as a percentage of sales were 23%
for the first quarter of fiscal 2000 and 10% for the first quarter of fiscal
1999. The increase in fiscal 2000 was due to general corporate overhead costs
that were previously charged to the former games business and are currently
being charged to the publishing business.
Other income increased $100,000 in the first quarter of fiscal 2000 compared to
the first quarter of fiscal 1999. The increase was primarily due to the
increase in interest income and sale of equipment.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1999, the Company has cash and cash equivalents of approximately
$7,209,000 a decrease of $112,000 from the amount at April 30, 1999. The
decrease resulted primarily from cash used in operations of $118,000. 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, 1999, the Company has no debt with third party lenders.
<PAGE>
YEAR 2000 DISCLOSURE
As the Year 2000 approaches, existing software programs and operating systems
must be reviewed to determine if they can accommodate information that employs
dates after December 31, 1999. As of July 31, 1999, the Company has incurred
direct Year 2000 compliance costs of approximately $15,000, to cover assessment
of systems, internal testing, training, and replacement and modification of
existing systems. The Company's Year 2000 compliance costs consist of software,
consulting time, employee time and new and upgraded hardware. The Company
expects to complete its Year 2000 program during October, 1999 at an estimated
cost to completion of an additional $10,000.
Management has hired an independent consultant to establish and implement a plan
to address the Company's software and operating systems issues for the Year
2000. The Company's plan includes assessment, remediation and renovation and
testing. The Company has completed the assessment phase which includes the
identification of critical and non-critical operating systems and external
interfaces with third-party computer systems and a survey of the majority of the
Company's vendors concerning Year 2000 compliance. Responses from vendors have
generally indicated that such vendors expect to be Year 2000 compliant. The
Company commenced the remediation and renovation phase in April 1999 with the
purchase of hardware and software to replace critical and non-critical operating
systems that would likely be affected by the Year 2000 issue. The replacement
hardware and software are off-the-shelf, Gateway based, products from Intuit and
Microsoft which, based upon manufacturer information, management believes are
less susceptible to Year 2000 issues. The Company is currently working with its
hardware and software vendors and other third parties to complete the
remediation and renovation phase. Completion and transition to the Company's new
systems are expected by September 1999. The Company expects to complete the
testing phase in October 1999.
The Company has not identified a cost-effective Year 2000 contingency plan
beyond confirming its ability to shift its business to alternative vendors and
service providers. The Company uses one major vendor for the printing and
mailing of Girls' Life magazine, but based on documentation and discussions with
the vendor, management does not expect a disruption of service due to the Year
2000 issue. The Company believes that other vendors of printing and mailing
services could meet the needs of Girls' Life if necessary.
While the Company believes that it is taking prudent and necessary action to
comply with Year 2000 requirements, there can be no assurance that the Year 2000
issue will not result in information or communications systems interruptions.
Such interruptions, if of significant duration, could be expected to have a
material adverse effect on the Company's business, financial condition, results
of operations and business prospects.
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 5
NONE / NOT APPLICABLE
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>
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 September 14, 1999 /s/ A. Eric Dott
------------------ -------------------------------
A. Eric Dott
Chairman of the Board
Date September 14, 1999 /s/ A. Eric Dott
------------------ -------------------------------
A. Eric Dott
Chairman of the Board
(Principal Executive Officer)
Date September 14, 1999 /s/ Marshall Chadwell
------------------ -------------------------------
Marshall Chadwell, Controller
Chief Financial Officer
(Principal Accounting and
Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CAPTION>
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
The schedule contains summary financial information extracted from Monarch
Services, Inc.'s unaudited financial statements for the period ended July 31,
1999, and is qualified in its entirety by reference to such financial statements
and the notes thereto.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Apr-30-2000
<PERIOD-START> May-01-1999
<PERIOD-END> Jul-31-1999
<CASH> 7,209
<SECURITIES> 0
<RECEIVABLES> 201
<ALLOWANCES> 162
<INVENTORY> 0
<CURRENT-ASSETS> 7,765
<PP&E> 836
<DEPRECIATION> 602
<TOTAL-ASSETS> 8,328
<CURRENT-LIABILITIES> 2,038
<BONDS> 0
0
0
<COMMON> 527
<OTHER-SE> 3,378
<TOTAL-LIABILITY-AND-EQUITY> 8,328
<SALES> 603
<TOTAL-REVENUES> 713
<CGS> 488
<TOTAL-COSTS> 629
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 84
<INCOME-TAX> 30
<INCOME-CONTINUING> 54
<DISCONTINUED> (507)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (453)
<EPS-BASIC> (.28)
<EPS-DILUTED> (.28)
</TABLE>
