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, 2000 COMMISSION FILE NO. 0-8512
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MONARCH SERVICES, INC.
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(Exact name of small business issuer as specified in its charter)
Maryland 52-1073628
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation)
4517 Harford Road, Baltimore, Maryland 21214
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(Address of principal executive offices) (Zip Code)
Issuer'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 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, 2000, 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>
October 31, 2000
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(000's Omitted)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $8,341
Accounts receivable, net 385
Marketable securities available
for sale 15
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8,741
Income taxes receivable 147
Prepaid expenses 39
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TOTAL CURRENT ASSETS 8,927
PROPERTY AND EQUIPMENT 726
Less accumulated depreciation (482)
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244
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INTANGIBLE ASSETS, NET 20
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$9,191
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 311
Accrued expenses 82
Deferred subscription revenues 1,455
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TOTAL CURRENT LIABILITIES 1,848
Deferred income taxes 271
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TOTAL LIABILITIES 2,119
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
Accumulated other comprehensive income (loss) (15)
Retained earnings 3,304
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7,194
Treasury stock at par - 490,165 shares (122)
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TOTAL STOCKHOLDERS' EQUITY 7,072
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$9,191
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<FN>
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
MONARCH SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
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2000 1999 2000 1999
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(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Net Sales - publishing $ 1,543 $ 1,524 $ 2,284 $ 2,127
Cost of goods sold - publishing 1,310 887 1,913 1,376
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Gross profit from continuing
operations 233 637 371 751
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Selling, general and
administrative expenses 254 157 531 298
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Income (loss) from continuing
operations before other
income and income taxes (21) 480 (160) 453
Other income:
Investment and interest income 135 68 251 140
Other 24 10 24 48
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Income from continuing operations
before income taxes 138 558 115 641
Income tax expense 53 190 45 218
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Income from continuing operations 85 368 70 423
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Discontinued Operations:
Operating loss from printing and
envelope division (net of income
tax benefit of $87 and $230) for the
three months and six months ended
October 31, 2000, respectively 0 (168) 0 (447)
Estimated loss on disposal of
printing and envelope (net of
income tax benefit of $24 and
$140) for the three months and
six months ended October 31,
1999, respectively 0 (26) 0 (255)
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Income (loss) from discontinued
operations 0 (194) 0 (702)
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Net income (loss) 85 174 70 (279)
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Net earnings (loss) per common
share-basic and diluted:
Income from continuing
operations per share $ .05 $ .23 $ .04 $ .26
Income (loss) from discontinued
operations .00 (.12) .00 (.43)
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Net income (loss) per common
share - basic and diluted $ .05 $ .11 $ .04 $(.17)
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Weighted average number of shares
outstanding 1,619,820 1,619,820 1,619,820 1,619,820
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<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
MONARCH SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Six Months Ended
October 31,
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2000 1999
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(000's Omitted)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 70 $ (279)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Gain on disposal of equipment 0 (57)
Depreciation and amortization 35 52
Changes in accounts receivable,
prepaid expenses, income tax
receivable, accounts payable,
accrued expenses and deferred
subscription revenue. (113) 81
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Total cash used in operating
activities ( 8) (203)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment,
intangible assets and improvements (73) (21)
Cash proceeds from disposal of property
and equipment 0 57
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Total cash (used) provided by
investing activities (73) 36
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NET DECREASE IN CASH AND CASH
EQUIVALENTS (81) (167)
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 8,422 7,321
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CASH AND CASH EQUIVALENTS
END OF PERIOD $ 8,341 $ 7,154
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<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) and 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 specific to the
discontinued printing and envelope segment) 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 and six months ended October 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
April 30, 2001. 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, 2000.
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., International Periodical
Distributors, Retail Vision and Worldwide Media Service, Inc. 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 2000 was as set
forth in the following table.
Distribution Channel Number of Magazines Distributed
-------------------- -------------------------------
Newsstand Sales 65,000
Subscription Sales 267,000
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Total Paid Circulation 332,000
Complementary Copies 1,000
The following table sets forth the average number of subscriptions
geographically sold per issue, internationally and domestically during fiscal
year 2000.
Geographic Distribution Number of Magazines Distributed
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United States 263,000
International 4,000
<PAGE>
NOTE B - DISCONTINUED OPERATIONS
CLOSING OF PRINTING AND ENVELOPE DIVISION:
Effective August 20, 1999, the Company closed the printing and envelope division
due to increased losses. The machinery and equipment and inventories of the
printing and envelope division were sold privately or auctioned off in November
1999.
Due to the closing of the printing and envelope division, wages, severence pay,
vacation, sick days and accrued rent were estimated and recorded for the three
months and six months ended October 31, 1999.
Net sales and income from discontinued operations of the printing and envelope
division are as follows (in thousands):
Three Months Ended Six Months Ended
October 31, October 31,
2000 1999 2000 1999
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Net sales $ 0 $ 124 $ 0 $ 516
loss on disposal of printing
and envelope division (net
of tax benefit) 0 (26) 0 (255)
Loss from discontinued
operations (net of tax benefit) 0 (168) 0 (447)
NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at October 31, 2000:
Accounts Receivable-Printing 2,039
-publishing 435,000
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Less: 437,039
Allowance for doubtful accounts ( 52,039)
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$ 385,000
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<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 2001 are to the fiscal year
ending April 30, 2001, and references to fiscal 2000 are to the fiscal year
ended April 30, 2000.
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, 2000 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, 2000. 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 operating subsidiary, Girls' Life, Inc.,
that publishes a magazine.
RESULTS FOR THE SECOND QUARTER OF FISCAL YEAR 2001 AND 2000
The revenues of Girls' Life, Inc. are seasonal in nature. Girl's Life magazine
is published six times per year. The Company's typical publication schedule
usually results in the accrual of revenues for one issue in the first and third
quarters of the fiscal year and the accrual of revenues for two issues in the
second and fourth quarters of the fiscal year. The publication schedule is
subject to revision without notice.
Sales of the Publishing division in the second quarter of fiscal 2001 increased
by $19,000 or 1% from the second quarter of fiscal 2000. The increase in sales
of the Publishing division relates primarily to the increase in subscription and
advertising income for the second quarter.
Cost of goods sold as a percent of sales was 85% in the second quarter of fiscal
2001 compared to 58% in the second quarter of fiscal 2000. The increase in
fiscal 2001 was primarily due to increased shipping and deliverly expenses and
labor costs for additional personnel in the publishing division and additional
labor and overhead costs charged to publishing Girls' Life as a result of the
closing of the printing and envelope divisions.
Gross profit decreased by $404,000 or 63% during the second quarter of fiscal
2001 compared to the second quarter of fiscal 2000. Gross margin was 15%
during the second quarter of fiscal 2001 as compared to 42% during the second
quarter of fiscal 2000.
Selling, general and administrative expenses as a percentage of sales were 16%
for the second quarter of fiscal 2001 and 10% for the second quarter of fiscal
2000. The increase in fiscal 2001 was primarily due to more advertising and
promotional expenses for the second quarter of fiscal 2001 as compared to the
second quarter of fiscal 2000 and an increase in corporate overhead charged to
the publishing division as a result of the closing of the and printing and
envelope divisions.
The Company expects Selling, general and administrative expenses to increase in
future periods due to the efforts of the Company to start up a new Boys/Mens
magazine.
Other income increased $81,000 in the second quarter of fiscal 2001 compared to
the second quarter of fiscal 2000. The increase was primarily due to the
increase in interest income.
RESULTS FOR THE FIRST SIX MONTHS OF FISCAL YEAR 2000 AND 1999
The revenues of Girls' Life, Inc. are seasonal in nature. Girls' Life magazine
is published six times per year. The Company's typical publication schedule
usually results in the accrual of revenues for one issue in the first and third
quarters of the fiscal year and the accrual of revenues for two issues in the
second and fourth quarters of the fiscal year. The publication schedule is
subject to revision without notice.
Sales of the Publishing Division during the six months of fiscal 2001 increased
by $158,000 or 7% from the six months of fiscal 2000. 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 84% during the six months of fiscal
2001 compared to 65% in the six months of fiscal 2000. The increase in fiscal
2001 was primarily due to increased shipping and delivery expenses and
increased labor costs for additional personnel in the publishing division and
additional overhead and labor costs charged to publishing Girls' Life as a
result of the closing of the games and printing and envelope divisions.
Gross profit decreased by $380,000 or 51% during the six months of fiscal 2001
compared to the six months of fiscal 2000. Gross margin was 16% during the six
months of fiscal 2001 compared to 35% during the six months of fiscal 2000.
Selling, general and administrative expenses as a percentage of sales were 23%
for the six months of fiscal 2001 and 14% for the six months of fiscal 2000.
The increase in fiscal 2001 was primarily due to increased advertising and
promotional expenses and an increase in corporate overhead charged to the
publishing division as a result of the closing of the games and printing and
envelope divisions.
The Company expects Selling, general and administrative expenses to increase in
future periods due to the efforts of the Company to start up a new Boys/Mens
magazine.
Other income increased $87,000 during the six months of fiscal 2001 compared to
the six months of fiscal 2000. The increase was due primarily to the increase
in interest income.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2000, the Company has cash and cash equivalents of approximately
$8.3 million, a decrease of $81,OOO from the amount at April 30, 2000. The
decrease resulted primarily from cash used in operations. 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, 1999, the Company has no debt with third party lenders.
The Company completed its reincorporation in the State of Maryland on November
30, 2000.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The 2000 Annual Meeting of Stockholders was held at 11:00 a.m. on October 30,
2000, at the Center Club, Legg Mason Building, 100 Light Street, Baltimore,
Maryland.
It was announced at the October 30, 2000 annual stockholders meeting that the
Company was adjourning the shareholders meeting to November 13, 2000, 11 a.m.
Baltimore time at the Center Club, Legg Mason Building, 100 Light Street,
Baltimore, Maryland, in order to allow for further solicitation of proxies with
respect to the proposals set forth in the Company's proxy statement.
Results of the proposal for the election of five persons to the Board of
Directors of the Company:
Directors FOR WITHHELD
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A. Eric Dott 1,154,439 0
David F. Gonano 1,154,439 0
Jackson Y. Dott 1,154,439 0
Helen Delich Bentley 1,153,472 967
Kenneth C. Holt 1,154,439 0
Results of the proposal to ratify Stegman & Company, as independent auditors of
the Company for the fiscal year ending April 30, 2001:
FOR AGAINST ABSTAIN
______________ ___________ ___________
1,088,333 380,587 45,919
Results of the proposal to reincorporate the Company in Maryland:
FOR AGAINST ABSTAIN
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822,497 480,352 5,262
Results of the proposal to approve the Company's 2000 Omnibus Stock Plan:
FOR AGAINST ABSTAIN
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903,252 399,921 4,938
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
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) 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 December 1, 2000 /s/ A. Eric Dott
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A. Eric Dott
Chairman of the Board
Date December 1, 2000 /s/ A. Eric Dott
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A. Eric Dott
Chairman of the Board
(Principal Executive Officer)
Date December 1, 2000 /s/ Marshall Chadwell
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Marshall Chadwell, Controller
Chief Financial Officer
(Principal Accounting and
Financial Officer)
