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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, 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)
Delaware 52-1073628
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(State or other jurisdiction of (IRS EmployerIdentification 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 July 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 ]
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<TABLE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
MONARCH SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<CAPTION>
July 31, 2000
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(000's Omitted)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $8,230
Accounts receivable, net 129
Marketable securities available
for sale 23
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8,382
Income taxes receivable 191
Prepaid expenses 98
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TOTAL CURRENT ASSETS 8,671
PROPERTY AND EQUIPMENT 702
Less accumulated depreciation (465)
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237
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INTANGIBLE ASSETS, NET 18
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$8,926
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 70
Accrued expenses 48
Deferred income taxes 272
Deferred subscription revenues 1,551
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TOTAL CURRENT LIABILITIES 1,941
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 3,219
Accumulated other comprehensive income (loss) (17)
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7,107
Treasury stock at par - 490,165 shares (122)
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TOTAL STOCKHOLDERS' EQUITY 6,985
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$8,926
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<FN>
See notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
MONARCH SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three Months Ended
July 31,
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2000 1999
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(000's omitted, except per share data)
<S> <C> <C>
Net Sales - publishing $ 741 $ 603
Cost of goods sold - publishing 603 488
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Gross profit from continuing
operations 138 115
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Selling, general and
administrative expenses 277 141
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Loss from continuing
operations before other
income and income taxes (139) (26)
Other income:
Investment and interest income 116 72
Other 0 38
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116 110
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(Loss) income from continuing
operations before income taxes (23) 84
Income tax (benefit) expense (8) 30
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(Loss) income from continuing operations (15) 54
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Discontinued Operations:
Operating loss from printing and
envelope division (net of income
tax benefit of $143) 0 (279)
Estimated loss on disposal of printing
and envelope and games segments
(net of income tax benefit of $117) 0 (228)
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Loss from discontinued operations 0 (507)
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Net loss (15) (453)
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Net Earnings (loss) per common
share - basic and diluted:
(Loss) income from continuing
operations per share $ (.01) $ .03
Loss from discontinued
operations 0 (.31)
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Net loss per common share
- basic and diluted $ (.01) $ (.28)
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Weighted average number of
shares outstanding - basic 1,619,820 1,619,820
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Weighted average number of
shares outstanding - diluted 1,619,820 1,619,820
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<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
MONARCH SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Three Months Ended
July 31,
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2000 1999
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(000's Omitted, except per share date)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (15) $ (453)
Adjustments to reconcile net loss ------ ------
to net cash used in operating
activities:
Depreciation and amortization 18 30
Gain on disposal of equipment 0 (27)
Changes in accounts receivable,
inventories, other assets,
assets held for sale, accounts
payable, accrued expenses,
deferred subscription revenue
and income taxes payable (122) 332
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Total cash used in operating activities (119) (118)
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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 27
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Total cash (used) provided by
investing activities (73) 6
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NET DECREASE IN CASH AND
CASH EQUIVALENTS (192) (112)
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 8,422 7,321
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CASH AND CASH EQUIVALENTS
END OF PERIOD $ 8,230 $ 7,209
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<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
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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
active 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 severence to employees
of 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 ended July 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. 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
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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
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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 quarter
ended July 31, 1999.
Net sales and income from discontinued operations of the printing and envelope
division were as follows (in thousands):
Quarter Ended July 31,
2000 1999
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Net sales $ 0 $ 392
Estimated loss on disposal
of printing and envelope
division (net of tax benefit) 0 (228)
Estimated loss from discontinued
operations (net of tax benefit) 0 (279)
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NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at July 31, 2000:
Accounts Receivable-Printing $ 2,039
-publishing 179,000
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Less: 181,039
Allowance for doubtful accounts (52,039)
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$ 129,000
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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.
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RESULTS OF OPERATIONS
Monarch Services, Inc. consists of one operating subsidiary, Girls' Life, Inc.,
that publishes a magazine.
RESULTS FOR THE FIRST QUARTER OF FISCAL YEAR 2001 AND 2000
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 in the first quarter of fiscal 2001 increased
by $138,000 or 23% from the first quarter 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 81% in both the first quarter of
fiscal 2001 and 2000.
Gross profit increased by $23,000 or 20% during the first quarter of fiscal 2001
compared to the first quarter of fiscal 2000. Gross margin was 18.7% during
the first quarter of fiscal 2001 as compared to 19.1% during the first quarter
of fiscal 2000.
Selling, general and administrative expenses as a percentage of sales were 37%
for the first quarter of fiscal 2001 and 23% for the first quarter of fiscal
2000. The increase in fiscal 2001 was due to general corporate overhead costs
that were previously charged to the former printing and envelope business and
included in discontinued operations. These expenses are currently being charged
to the publishing business.
Included in selling, general and administrative expenses for the three months
ended July 31, 2000 are $24,000 in expenditures for web site design and new
product development.
Other income increased $6,000 in the first quarter of fiscal 2001 to $116,000
from $110,000 in the first quarter of fiscal 1999. The net increase was
primarily due to the increase in interest income the decrease of other
miscellaneous income.
Due to continued losses, the Company closed the printing and envelope division
effective August 20, 1999. Management estimated the loss on disposal of the
printing and envelope division to be $228,000 (net of tax benefit of $117,000).
Operations of the printing and envelope division for the three months ended July
31, 1999 have been reclassified as discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2000, the Company has cash and cash equivalents of approximately
$8,230,000 a decrease of $192,000 from the amount at April 30, 2000. The
decrease resulted primarily from cash used in operations of $119,000 and the
purchase of equipment, intangible assets and improvements. 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, 2000, the Company has no debt with third party lenders.
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PART II. OTHER INFORMATION
ITEMS 1 THROUGH 5
NONE / NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS FOR FORM 8-K
(a) Exhibits
Number Description
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27. Financial Data Schedule
(b) Reports on Form 8-K
No reports have been filed on Form 8-K during this
quarter.
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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, 2000 /s/ A. Eric Dott
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A. Eric Dott
Chairman of the Board
Date September 14, 2000 /s/ A. Eric Dott
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A. Eric Dott
Chairman of the Board
(Principal Executive Officer)
Date September 14, 2000 /s/ Marshall Chadwell
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Marshall Chadwell, Controller
Chief Financial Officer
(Principal Accounting and
Financial Officer)