SECURITES 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, 2000 Commission File No. 0-8512
----------------------
MONARCH SERVICES, INC.
(Name of small business issuer in its charter)
DELAWARE 410-254-9200 52-1073628
(State or other jurisdiction (Issuer's telephone (I.R.S. Employer
of incorporation or number, including Identification No.)
organization) area code)
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, 2000 are
$4,001,000.
As of July 20, 2000, the aggregate market value of the Issuer's common
stock held by non-affiliates was $3,866,183.
As of July 20, 2000, the number of shares outstanding of the Issuer's
common stock was 1,619,820.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be filed under Regulation 14A
for the annual meeting to be held in October, 2000 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
Monarch Services, Inc. (the "Company") formerly Monarch Avalon, Inc. was
incorporated in Delaware on December 20, 1976 as a commercial printing company
and as the successor to a developer and publisher of strategy board games that
originally entered the games business in 1958. In 1993, the Company
incorporated a subsidiary, Girls' Life, Inc. which commenced substantial
operations with the sale of the first issue of Girls' Life magazine in August
1994.
On October 27, 1998, the Company sold substantially all the assets of its former
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.
On August 20, 1999, the Company closed the printing and envelope division due to
increased losses since the previous year's sale of the games division. The
operating results of the printing and envelope division have been classified as
discontinued operations for all periods presented in the consolidated statements
of operations.
On November 2, 1999, all remaining machinery and equipment from the games
division and remaining inventories and machinery and equipment from the printing
and envelope division were sold at auction.
The Company operated in two businesses during fiscal 1999: publishing and
printing and envelopes. The printing and envelope division was closed during
fiscal 2000 and is included in discontinued operations. The businesses share
certain facilities and operates under common management.
Publishing Business
Girls' Life, Inc. publishes a bi-monthly magazine for young girls age nine to
fourteen. In 1998, Girls' Life, Inc. created the magazine's website to be used
by its readers and the general public. The Girls' Life website
(www.girlslife.com) allows girls to read past articles, enter contests, connect
with other girls via message boards, and chat with the magazine's editors.
Through the website, Girls' Life can be enjoyed by millions of girls worldwide
every hour of every day.
Girls' Life is intended to be an intelligent, non-condescending and easily read
magazine. The philosophy behind the graphic representation and every article
presented is that girls are important, independent, and intelligent people with
opinions of their own. Each article seeks 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. The
magazine is printed through one large national printing service company.
<PAGE>
The revenues of the Company's publishing business are seasonal in nature.
Girls' Life magazine is published six times per year normally, two issues
are published in the second and fourth quarters and one issue is published
in each of the first and third quarters.
Printing and Envelope Business
On August 20, 1999, the Company closed the printing and envelope division due to
ongoing losses.
MARKETING
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. 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
---------
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
--------------------------- -----------------------------------
United States 263,000
International 4,000
<PAGE>
COPYRIGHTS AND TRADEMARKS
The Company's magazine is generally protected by registered trademarks and
copyrights in the United States and foreign countries to the extent that such
protection is available.
COMPETITION
Competition in the publishing industry is intense with numerous other publishers
and retailers, as well as other media, competing for readers and advertising
revenue. Most of the Company's competitors in the publishing business have
broader and better recognized product offerings and greater experience, depth of
management and creative and financial resources than the Company. Given these
factors, there can be no assurance that the Company will be able to continue to
compete successfully in the publishing industry and the failure to do so may
have a material adverse effect on the results of the publishing business.
EMPLOYEES
At April 30, 2000, the Company employed 26 executive, administrative and
clerical personnel. One of the administrative personnel was part time. None of
the Company's employees are represented by a union. The Company believes its
relations with its employees are good.
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 and warehouse facilities. The property is leased through 2006.
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.
Item 3. LEGAL PROCEEDINGS
Companies in the publishing industry 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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
NONE
<PAGE>
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock Market Prices and Dividends
The Company's common stock is traded on the Nasdaq SmallCap Market under the
symbol MAHI. The number of stockholders of record on July 20, 2000 was
approximately 500. Effective with the commencement of trading on June 19, 1998,
the Company's Common Stock was voluntarily delisted from the Nasdaq National
Market and transferred to the Nasdaq SmallCap Market.
High and low closing sale prices for the last two years were:
Fiscal 2000 Fiscal 1999
Quarter Price Price
Ended High Low High Low
------- ------- ------- -------
July 31 2-29/32 2-17/32 1-3/4 1-1/2
October 31 4 3-5/8 1-15/16 1-15/16
January 31 3-11/16 3-11/16 3-5/16 3-1/8
April 30 3-7/16 3-7/16 3 3
Such prices reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not represent actual transactions. 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.
<PAGE>
Item 5A. 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
Annual Report on Form 10-KSB) 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 below
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. 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.
HISTORY OF OPERATING LOSSES
Prior to the reclassification of activity relating to discontinued operations,
the Company has reported losses from continuing operations before taxes in four
of the past five years. There can no assurance that the Company's business
strategies and tactics will be successful and that the Company will be
profitable in future periods.
WE MAY BE DELISTED FROM THE NASDAQ SMALLCAP STOCK MARKET
Under the rules of the Nasdaq SmallCap Stock Market, issuers must have a minimum
of 300 stockholders that hold round lots of 100 shares or more. Although the
Company believes that it currently has more than 300 stockholders of round lots
there can be no assurance that the Company will continue to have more than 300
stockholders of round lots. In the event the Company has less than 300 holders
of round lots, the Company's common stock may be delisted from the Nasdaq
SmallCap Stock Market. In the event the Company's common stock is delisted from
the Nasdaq SmallCap Stock Market, trading in the common stock, should a market
develop, could be conducted in the over-the-counter market in the so-called
"pink sheets" or the NASD's Electronic Bulletin Board. Such markets are
characterized by relatively low liquidity and relatively large spreads between
bid and ask prices in comparison to the Nasdaq SmallCap Stock Market.
<PAGE>
COMPETITION
Competition in the publishing industry is intense with numerous other publishers
and retailers, as well as other media, competing for readers and advertising
revenue. Most of the Company's competitors in the publishing business have
broader and better recognized product offerings and greater experience, depth of
management and creative and financial resources than the Company. Given these
factors, there can be no assurance that the Company will be able to continue to
compete successfully in the publishing industry and the failure to do so may
have a material adverse effect on the results of the publishing business.
LIMITED MARKET FOR PUBLISHING BUSINESS
The Girls' Life magazine is targeted to girls ages nine to fourteen. Since
Girls' Life's target audience is limited by age and gender, Girls' Life, unlike
other magazines that appeal to broader age groups, must replace a large portion
of its readership each year due to maturing of its audience. Accordingly, Girls'
Life's promotional expenses that are designed to replace and expand its
readership may be higher than other magazines with comparable circulation.
There can be no assurance that Girls' Life will be able to replace its existing
readers and expand its circulation going forward. Any decrease in Girls' Life's
circulation, due to demographic or other factors, can be expected to have a
material adverse effect on the revenues of the Company's publishing business.
EFFECT OF INCREASES IN PAPER AND POSTAGE COSTS
The price of paper is a significant expense of the Company's publishing
business. Paper price increases may have an adverse effect on the Company's
future results. Postage for the magazine distribution is also a significant
expense of the Company. The Company uses the U.S. Postal Service for
distribution of its magazine. Postage costs increase periodically and can be
expected to increase in the future. No assurances can be given that the Company
can pass such cost increases through to its customers.
CONTROL BY PRINCIPAL STOCKHOLDERS
A. Eric Dott and, his son, Jackson Y. Dott, the Company's Chairman and
President, respectively, beneficially own an aggregate of 42% of the outstanding
voting securities of the Company. Accordingly, these stockholders have the
ability, acting together, to exercise significant control over fundamental
corporate transactions requiring stockholder approval, including without
limitation the election of Directors, approval of merger transactions involving
the Company and sales of all or substantially all of the Company's assets.
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS FISCAL 1999 THROUGH FISCAL 2000
Sales of Girls' Life increased $198,000 or 5% in fiscal year 2000 from fiscal
year 1999. The increase in sales for Girls' Life relates primarily to increased
subscriptions as a result of increased promotions and direct mail advertising of
the magazine and increased revenue from advertising and list rental.
Cost of goods sold, as a percent of sales was 69% in fiscal year 2000 and 65% in
fiscal year 1999. The overall increase in 2000 was primarily due to increases in
direct labor costs and higher shipping and delivery costs of the publishing
business. There also was an increase in corporate overhead charged to the Girls'
Life division as a result of the closing of the printing and envelope division.
Selling, general and administrative expenses as a percentage of sales were 20%
in fiscal year 2000 and 19% in fiscal year 1999. The Company has experienced
increases in its selling, general and administrative expense due to general
corporate overhead costs that were previously charged to the former printing and
envelope business and are currently being charged to the publishing business.
The Company discontinued its printing and envelope division during the year
ended April 30, 2000 and discontinued its games division during the year ended
April 30, 1999. Operating losses attributable to the printing and envelope
division were $575,000 (net of tax benefit) for the year ended April 30, 2000
compared to $830,000 (net of tax benefit) for the year ended April 30, 1999.
During the third quarter of fiscal 2000, the sale of the printing and envelope
division was completed. The sale consisted primarily of equipment and limited
inventory and resulted in a gain of $345,000 (net of tax). Operating losses
attributable to the games division for fiscal year 1999 were $433,000 (net of
tax). A gain of $3,881,000 (net of tax) was realized upon the sale of the games
division during the second fiscal quarter of 1999.
Other income increased $209,000 in 2000 to $346,000 from $137,000 in 1999. The
fiscal year 2000 increase was primarily due to the increase in interest income
in the amount of $194,000 and other miscellaneous income in the amount of
$31,000. Other income increased $39,000 in 1999 from 1998. The 1999 increase
was primarily due to the increase in interest income.
Income tax expense attributable to continuing operations was $301,000 for the
year ended April 30, 2000. The Company's effective rate for the fiscal year
2000 was 44%. A income tax benefit of $79,000 attributable to continuing
operations was recorded for the year ended April 30, 1999.
<PAGE>
LIQUIDITY AND SOURCES OF CAPITAL
Cash and cash equivalents increased $1,101,000 in fiscal 2000 to $8,422,000. The
increase in fiscal year 2000 resulted primarily from the net proceeds of
$803,000 from the sale of the machinery and equipment from the games division
and the sale of machinery and equipment and inventories from printing and
envelope division, interest and other miscellaneous income in the amount of
$362,000.
The Company leases its office and warehouse facilities under noncancellable
operating leases. Annual commitments under these leases at April 30, 2000 are
$131,000 annually through 2006. Certain of these leases are with the Company's
Chairman and a member of his family.
At April 30, 2000, the Company had no debt with third-party lenders.
During fiscal 2000, cash and cash equivalents ranged from approximately $7.3
million to $8.4 million. The Company's cash and cash equivalents are subject to
variation based upon the timing of receipts and the payment of payables. During
fiscal 2000 the Company maintained an average balance for certificates of
deposit and treasury bills of approximately $455,000 and $6,197,000,
respectively.
Management believes that existing cash and cash equivalents, together with cash
generated from operations and investing activities, will be sufficient to meet
the Company's liquidity and capital needs for the next 12 months.
IMPACT OF INFLATION AND CHANGING PRICES
The price of paper is a significant expense of the Company's publishing
business. Paper price increases may have an adverse effect on the Company's
future results. Postage for the magazine distribution is also a significant
expense of the Company. The Company uses the U.S. Postal Service for
distribution of its magazine. Postage costs increase periodically and can be
expected to increase in the future. No assurances can be given that the Company
can pass such cost increases through to its customers.
<PAGE>
<TABLE>
Item 7. FINANCIAL STATEMENTS
Consolidated Statement of Financial Condition
<CAPTION>
------------------------------------------------------------
April 30, 2000
------------------------------------------------------------
(000's Omitted)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $8,422
Accounts receivable, net 230
Marketable securities available
for sale 32
-------
8,684
Prepaid expenses 35
Income taxes receivable 155
-------
TOTAL CURRENT ASSETS 8,874
PROPERTY AND EQUIPMENT
Machinery, equipment, furniture and
fixtures 354
Leasehold improvements 305
Accumulated depreciation (447)
-------
212
-------
INTANGIBLE ASSETS-NET 14
-------
$9,100
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 279
Accrued expenses 54
Deferred subscription revenue 1,478
-------
TOTAL CURRENT LIABILITIES 1,811
-------
DEFERRED INCOME TAXES 282
-------
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 3,234
Accumulated other comprehensive income (10)
-------
7,129
Treasury stock at par - 490,165 shares (122)
-------
TOTAL STOCKHOLDERS' EQUITY 7,007
-------
$9,100
=======
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Item 7. FINANCIAL STATEMENTS (Continued)
Consolidated Statements of Operations
<CAPTION>
-----------------------------------------------------------------------
Years Ended April 30, 2000 1999
-----------------------------------------------------------------------
(000's Omitted, except share information)
<S> <C> <C>
Net Sales - publishing $ 4,001 $ 3,803
Cost of goods sold - publishing 2,776 2,465
----------------------
Gross profit from continuing operations 1,225 1,338
----------------------
Selling, general and administrative
expenses 782 729
----------------------
Income from continuing operations before
other income and income taxes 443 609
Other income:
Investment and interest income 331 137
other 31 0
--------------------
362 137
--------------------
Income from continuing operations
before income taxes 805 746
Income tax expense 301 202
--------------------
Income from continuing operations 504 544
Discontinued Operations:
Operating loss from games division 0 (433)
Gain on disposal of games business
(net of income taxes of $580) 0 3,881
Operating loss from printing
and envelope division (net of
income tax benefit of ($297)
and ($281)) for the years ended
April 30, 2000 and April 30,
1999, respectively (575) (479)
Gain on disposal of printing and
envelope business (net of income
tax expense of $211) for the
year ended April 30, 2000 345 0
-----------------------
(Loss) income from discontinued
operations (230) 2,969
-----------------------
Net income $ 274 3,513
=======================
Net Earnings (loss) per common
share - basic and diluted:
Income from continuing
operations per share $ .31 $ .34
(Loss) income from discontinued
operations (.14) 1.83
-----------------------
Net earnings per common
share - basic and diluted $ .17 2.17
=======================
Weighted average number of
shares outstanding 1,619,820 1,619,820
=======================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Item 7. FINANCIAL STATEMENTS (Continued)
Consolidated Statements of Changes in Stockholders' Equity
<CAPTION>
------------------------------------------------------------------
Years Ended April 30, 2000 and 1999
------------------------------------------------------------------
(000's omitted, except shares outstanding data)
Accumulated
Other Comp- Total
Common Capital Retained prehensive Treasury Stockholders'
Stock Surplus Earnings Income Stock Equity
--------- ------- -------- ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance
May 1, 1998 $ 527 $ 3,378 $ (553) 0 $ (122) $ 3,230
Net income-1999 3,513 3,513
----------------------------------------------------------
Balance
April 30, 1999 $ 527 $ 3,378 $ 2,960 0 $ (122) $ 6,743
Net income-2000 274 274
Other comprehensive
income-unrealized
loss on marketable
Securities avail-
able-for-sale $ (10) (10)
----------------------------------------------------------
Total comprehensive
income 264
----------------------------------------------------------
Balance
April 30, 2000 $ 527 $ 3,378 $ 3,234 $ (10) $ (122) $ 7,007
==========================================================
Shares Outstanding: April 30, 1999 1,619,820
April 30, 2000 1,619,820
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Item 7. FINANCIAL STATEMENTS (Continued)
<CAPTION>
Consolidated Statements of Cash Flows
----------------------------------------------------------------
Year Ended April 30, 2000 1999
----------------------------------------------------------------
(000's Omitted)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 274 3,513
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 86 143
Deferred income taxes 21 (79)
Gain on disposal of games division 0 (3,881)
Gain on disposal of printing and
and envelope equipment (345) (70)
Decrease in allowance for doubtful
accounts (90) (45)
Increase/decrease in operating assets
and liabilities:
Accounts receivable, gross 290 589
Inventories 240 436
Prepaid expenses 25 24
Accounts payable 137 (210)
Accrued expenses (144) (525)
Income taxes payable/receivable (320) 165
Deferred subscription revenue 232 222
-----------------
Total cash provided by operating
activities 406 282
-----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ( 47) ( 5)
Purchases of intangible assets ( 12) ( 18)
Purchases of marketable securities ( 49) 0
Cash proceeds from disposal of property
and equipment 803 77
Cash proceeds from sale of substantially
all the assets of the games division,
net of related expenses 0 5,247
-----------------
Total cash provided by investing
activities 695 5,301
-----------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 1,101 5,583
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 7,321 1,738
-----------------
CASH AND CASH EQUIVALENTS
END OF YEAR $ 8,422 $ 7,321
=================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The consolidated financial statements of Monarch Services, Inc., formerly
Monarch Avalon, Inc., and its wholly-owned Subsidiary (collectively, "the
Company"), include Monarch Services, Inc. and Girls' Life, Inc. Certain
reclassifications have been made to amounts previously reported to conform with
classifications made in 2000.
Girls' Life, Inc. ("Girls' Life") was incorporated in December 1993 in the State
of Maryland and publishes a magazine for girls age nine to fourteen. Substantial
operations began in fiscal year 1995 with the release of its initial bi-monthly
publication in August 1994. Magazines are sold nationally and internationally
through distributors and directly by Girls' Life through one and two year
subscriptions.
Monarch Services, Inc. ("Monarch") is incorporated in the State of Delaware.
The operating results of the printing and envelope division have been classified
as discontinued operations for all periods presented in the consolidated
statements of operations.
Creampuffs, Inc. was incorporated on March 12, 1997 in the State of Maryland as
a marketing company for others. This subsidiary did not engage in any
operations in the years ended April 30, 2000 and 1999.
Broken Windows, Inc. was incorporated on June 11, 1997 in the State of Maryland
as a retail operation. On November 26, 1997, Broken Windows, Inc. opened a
retail store in Maryland for the purpose of selling computer and board games
manufactured by Monarch Avalon, Inc. and computer and board games manufactured
by other companies. Products associated with Girls' Life magazine were also
offered for sale to the general public. The retail store was closed on January
17, 1998. This subsidiary did not engage in any operations in the years ended
April 30, 2000 and 1999.
Girlslife.com was incorporated on January 24, 2000 in the State of Maryland.
This subsidiary did not engage in any operations in the year ended April 30,
2000.
All material intercompany balances and transactions between Monarch Services,
Inc. and Girls' Life Inc. have been eliminated in consolidation.
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
REVENUE RECOGNITION: Girls' Life Inc. 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.
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: Girls' Life sells its magazine through distributors and
direct individual subscriptions. Receivables consist of advertising income and
sales of magazines through the distributors for issues released prior to April
30.
INTANGIBLE ASSETS: Intangible assets consist of Monarch Services, Inc. and
Girls' Life, Inc. trademarks and are amortized using the straight-line method
over periods estimated to be benefited. At April 30, 2000, intangible assets
were $14,366.
INVENTORIES: The Company had no inventories as of April 30, 2000.
PROPERTY AND EQUIPMENT: Property and equipment is carried at cost and
depreciation is computed by the straight-line method over estimated useful lives
ranging from three to ten years.
FINANCIAL INSTRUMENTS: The current carrying value of current assets and current
liabilities is a reasonable estimate of their fair value due to the short-term
nature of such accounts.
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"). The Company has
classified its investments as available-for-sale based on its intended use. As
such, unrealized holding gains and losses are included as other comprehensive
income, a separate component of stockholders' equity.
RESEARCH AND DEVELOPMENT COSTS: The Company had no research and development
costs during the fiscal year 2000.
<PAGE>
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 bases of assets and liabilities that will result in future taxable income 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: Basic earnings per share are based on the weighted average
number of shares of common stock outstanding during each year. Common stock
equivalents had no dilutive effect.
STOCK-BASED COMPENSATION ARRANGEMENTS: The Company applies APB Opinion No. 25
and related interpretations in accounting for stock based compensation
arrangements. Accordingly, no compensation has been recognized. Had
compensation costs been determined based on fair value at the grant date forward
consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net income or loss would not have been effected on a pro forma basis.
NEW ACCOUNTING PRONOUNCEMENTS:
The Company is required to adopt Statement of Financial Accounting Standards No.
133 (SFAS No. 133) "Accounting for Derivative Instruments and Hedging
Activities" for the year ending April 30, 2001. SFAS NO. 133 requires reporting
entities to disclose certain information for derivative financial instruments.
As of April 30, 2000 and for the year then ended, the Company held no derivative
financial instruments. The Company has not assessed the impact of implementing
SFAS No.133.
<PAGE>
NOTE C - 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 million 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.
Inventories and intangibles from discontinued operations sold were
approximately as follows (in thousands):
Net inventories $1,292
Net intangibles 60
Net sales and income from discontinued operations of the games division are as
follows (in thousands):
Years Ended April 30,
2000 1999
------------------------------------------------------------
Net sales $ 0 $ 1,076
Loss from discontinued
operations 0 ( 433)
CLOSING OF PRINTING AND ENVELOPE DIVISION:
Effective August 20, 1999, the Company closed the printing and envelope division
due to increased losses since the previous year's sale of the games division.
Net sales and income from discontinued operations of the printing and envelope
division are as follows (in thousands):
Years Ended April 30,
2000 1999
---------------------------------------------------------------------
Net sales $ 516 $ 2,024
Gain on disposal of printing
and envelope equipment (net
of tax) 345 0
Loss from discontinued
operations (net of tax) (575) (479)
<PAGE>
NOTE D - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at April 30, 2000:
Accounts Receivable-Printing $ 2,039
-publishing 279,939
-----------
Less: 281,978
Allowance for doubtful accounts ( 52,039)
-----------
$ 229,939
===========
NOTE E - MARKETABLE SECURITIES AVAILABLE-FOR-SALE
At April 30, 2000, the cost and estimated fair value of marketable securities,
available-for-sale are as follows (in thousands):
Unrealized Unrealized Estimated
Cost Gains Loss Fair Value
------------------------------------------------------
Equity Securities $ 49 $ 0 $ 17 $ 32
======================================================
NOTE F - INCOME TAXES
A reconciliation of the effective tax rate for income taxes in the financial
statements to the Federal statutory rates is as follows:
--------------------------------------------------------------
Years Ended April 30, 2000 1999
--------------------------------------------------------------
Federal income tax at statutory rate 34% 34%
Net operating losses and other tax credits 0 (21)
Non-deductible items 1 1
State income taxes, net of federal benefit 5 0
Other 4 0
----- -----
44% 14%
===== =====
The deferred tax assets (liabilities) result from the following temporary
differences:
--------------------------------------------------------------
April 30, 2000
--------------------------------------------------------------
Deferred tax assets:
Financial statement accruals, net $ 16,500
Allowances for accounts receivable 20,000
Unrealized loss on marketable securities
available-for-sale 6,000
----------
Total deferred tax assets 42,500
Deferred tax liabilities:
Property and equipment (324,500)
__________
Net deferred tax liabilities $ 282,000
==========
Cash payments for income taxes were $211,450 and $415,000 for the years ended
April 30, 2000 and 1999, respectively.
<PAGE>
NOTE G - 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
charged at the discretion of the Board. There were no contributions in fiscal
years ended 2000 and 1999.
NOTE H - STOCK OPTION PLAN
The Company's Omnibus Stock Option Plan (the "Plan") provides for the granting
of certain types of qualified and nonqualified stock options to directors,
executive officers and key employees on a periodic basis at the discretion of
the Company's Board of Directors. The Company has reserved 300,000 shares of
common stock under the Plan.
During the fiscal year 2000, options for 200,000 shares of the common stock were
granted. The options begin to vest at an annual rate of 25% after the
completion of one year of service after the date of grant. The weighted average
exercise price of the options granted during fiscal 2000 was $3.72.
<PAGE>
NOTE I - COMMITMENTS AND CONTINGENCIES
LEASES: The Company leases office and warehouse facilities. The lease for the
office and warehouse facilities currently in use was extended for a term of 10
years commencing July 1997, and ending June 2007. The Company generally must pay
for property taxes, insurance and maintenance costs related to the property. The
lease for the property previously used by the games division was terminated in
December 1999. Total rental expense for 2000 and 1999 was approximately
$298,000 and $329,000, respectively.
The future annual minimum rental commitments for the current non-cancelable
operating lease as of April 30, 2000 is $131,000 annually through 2006.
The office and warehouse facilities are leased through 2006 for approximately
$131,000 annually 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. There are no legal actions pending at April 30,
2000.
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 common 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 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.
No options have been exercised during the years ended April 30, 2000 and 1999.
Options outstanding total 300,000 shares at April 30, 2000.
NOTE J- SEGMENT INFORMATION
The Company currently only operates in a single industry segment. Previously
reported industry segments have been classified as discontinued operations.
<PAGE>
NOTE K- CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS
A summary of the unaudited consolidated quarterly results of operations for the
years ended April 30, 2000 and 1999 is as follows.
Fiscal 2000
Three Months Ended
--------------------------------------------
July 31 October 31 January 31 April 30
------- ---------- ---------- --------
(000 Omitted, except per share data)
Net operating Sales $ 603 $1,524 $1,236 $ 638
Gross Profit 115 637 455 18
Net income (loss) from
continuing operations 54 368 268 (186)
Income(Loss from)
discontinued operations (507) (194) 456 15
Net(Loss) income (453) 174 724 (171)
Net(Loss) income per
Common Share - basic
and diluted share (.28) .11 .45 (.11)
There was one issue of Girls' Life magazine in the three months ended April 30,
2000 and July 31, 1999 and two issues in the three months ended January 31,
2000 and October 31, 1999.
Fiscal 1999
Three Months Ended
--------------------------------------------
July 31 October 31 January 31 April 30
------- ---------- ---------- --------
(000 Omitted, except per share data)
Net Operating Sales $ 497 $1,432 $ 835 $ 1,039
Gross Profit 57 725 186 370
Net income from continuing
operations 17 497 11 19
Income (Loss) from
discontinued operations (593) 3,789 (339) 112
Net (Loss) income (576) 4,286 (328) 131
Net (Loss) income
per Common Share (.36) 2.65 (.20) .08
There was one issue of Girls' Life magazine in the three months ended July 31,
1998 and January 31, 1999 and two issues of Girls' Life magazine in the three
months ended October 31, 1998 and April 30, 1999.
<PAGE>
Independent Auditors' Report
To the Stockholders and Board of Directors, Monarch Services, Inc. Baltimore,
Maryland
We have audited the accompanying consolidated statement of financial condition
of Monarch Services, Inc. and Subsidiaries as of April 30, 2000 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the year then ended. 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 audit. The financial statements of the
Company as of April 30, 1999 and for the year then ended were audited by other
auditors whose report dated July 22, 1999 expressed an unqualified opinion on
those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Monarch Services, Inc. and
Subsidiaries as of April 30, 2000, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Stegman & Company
Stegman & Company
Baltimore, Maryland
June 23, 2000
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Monarch Services, Inc.
Baltimore, MD
We have audited the accompanying consolidated statement of operations, changes
in stockholders' equity, and cash flows of Monarch Services, Inc. and
Subsidiaries for the year ended April 30, 1999. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements of Monarch Services, Inc.
and Subsidiaries present fairly, in all material respects, the results of their
operations and their cash flows for the year ended April 30, 1999 in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Baltimore, MD
July 22, 1999
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
The Company filed a report on Form 8-K dated February
29, 2000 to report under Item Four of Form 8-K, that
the Company's Board of Directors, on the recommendation
of the Company's Audit Committee, dismissed Deloitte &
Touche LLP as the Company's independent public
accountants effective February 29, 2000. Deloitte &
Touche's audit reports on the Company's financial
statements for each of the Company's fiscal years ended
April 30, 1999 and 1998 did not contain an adverse
opinion or a disclaimer of opinion and was not qualified
or modified as to uncertainty, audit scope or accounting
principles.
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 2000 Annual Meeting of Stockholders.
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The information required by Item 9 is incorporated by
reference from the information set forth under the heading
"Election of Directors--Directors and Officers" and "Section
16(A) Beneficial Ownership Reporting Compliance" in the
Company's definitive proxy statement for its 2000 annual
meeting of stockholders.
Item 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated by reference
from the information set forth under the heading "Election of
Directors--Executive Compensation" in the Company's definitive
proxy statement for its 2000 annual meeting of stockholders.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 11 is incorporated by reference
from the information set forth under the heading "Ownership of
Voting Securities--Principal Stockholders" in the Company's
definitive proxy statement for its 2000 annual meeting of
stockholders.
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is incorporated by reference
from the information set forth under the heading "Election of
Directors--Certain Relationships and Related Transactions" in
the Company's definitive proxy statement for its 2000 annual
meeting of stockholders.
Item 13. EXHIBITS 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).
(f) Amendment to the Company's by-laws dated August
1, 1996 (incorporated by reference to Exhibit 3(f)
to the Company's 10-QSB for the quarter ended
July 31, 1997).
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) Monarch Services, Inc. Omnibus Stock Plan incorporated
by reference to Ex. 4 to the Company's Form S-8
(file no. 333-31536) as filed with the Securities
and Exchange Commission on March 2, 2000.
21. Subsidiaries of the Registrant (incorporated
by reference to Exhibit 21 to the Company's
Form 10-QSB for the quarter ended January 31,
2000).
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Stegman & Company
27. Financial Data Schedule.
(b) The Company filed a report on Form 8-K dated February
29, 2000 to report under Item Four of Form 8-K, that
the Company's Board of Directors, on the recommendation
of the Company's Audit Committee, dismissed Deloitte &
Touche LLP as the Company's independent public
accountants effective February 29, 2000. Deloitte &
Touche's audit reports on the Company's financial
statements for each of the Company's fiscal years ended
April 30, 1999 and 1998 did not contain an adverse
opinion or a disclaimer of opinion and was not qualified
or modified as to uncertainty, audit scope or accounting
principles.
<PAGE>
S I G N A T U R E S
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 SERVICES, INC.
By: /s/ A. Eric Dott
--------------------------
A. Eric Dott, Chairman
and Director
DATE: July 28, 2000
-------------
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 28, 2000 /s/ Jackson Y. Dott
---------------- -------------------------------
Jackson Y. Dott, President
(Principal Executive Officer),
Treasurer and Director
Date July 28, 2000 /s/ David F. Gonano
---------------- -------------------------------
David F. Gonano, Director
Date July 28, 2000 /s/ Helen Delich Bentley
---------------- -------------------------------
Helen Delich Bentley, Director
Date July 28, 2000 /s/ Kenneth C. Holt
---------------- -------------------------------
Kenneth C. Holt, Director
Date July 28, 2000 /s/ A. Eric Dott
---------------- -------------------------------
A. Eric Dott, Chairman and
Director
Date July 28, 2000 /s/ Marshall Chadwell
---------------- -------------------------------
Marshall Chadwell, Controller
(Principal Financial Officer),
Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
Exhibit Number
--------------
23.1 - Letter of Consent dated July 28, 2000 from
Deloitte & Touche LLP
23.2 - Letter of Consent dated July 28, 2000 from
Stegman & Company
27 - Financial Data Schedule
<PAGE>
