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 January 31, 2000 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 January 31, 2000, the number of shares outstanding of the issuer's common
stock was 1,619,820 shares.
Transitional Small Business Issuer 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>
January 31, 2000
------------------
(000's Omitted)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $8,502
Accounts receivable, net 397
Marketable securities 48
-----
8,947
Other current assets 24
-----
TOTAL CURRENT ASSETS 8,971
PROPERTY AND EQUIPMENT 648
Less accumulated depreciation (437)
-----
211
-----
INTANGIBLE ASSETS, NET 6
DEFERRED TAX ASSET 79
-----
$9,267
-----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 256
Accrued expenses 74
Income taxes payable 378
Deferred subscription revenues 1,371
------
TOTAL CURRENT LIABILITIES 2,079
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 3,405
------
7,310
Treasury stock at par - 490,165 shares (122)
-----
TOTAL STOCKHOLDERS' EQUITY 7,188
-----
$9,267
-----
<FN>
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
MONARCH SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Net Sales - publishing $ 1,236 $ 835 $ 3,363 $ 2,764
Cost of goods sold - publishing 781 649 2,227 1,796
------------------------------------
Gross profit from continuing
operations 455 186 1,136 968
------------------------------------
Selling, general and
administrative expenses 152 209 380 505
------------------------------------
Income (loss) from continuing
operations before other
income and income taxes 303 ( 22) 756 463
Other income:
Investment and interest income 100 33 240 61
Other 3 0 22 0
------------------------------------
Income from continuing operations
before income taxes 406 11 1,018 524
Income tax expense 138 0 346 0
------------------------------------
Income from continuing operations 268 11 672 524
------------------------------------
Discontinued Operations:
Operating loss from
games division 0 0 0 (279)
Gain on disposal of games business
(less income taxes of $516 for the
three months and nine months ended
January 31, 1999) 0 62 0 3,805
Operating income (loss) from printing
and envelope division (net of income
tax expense of $25 and ($297) for the
three months and nine months ended
January 31, 2000, respectively 47 (401) (575) (668)
Gain on disposal of printing and
and envelope business (net of
income tax of $211 and $178)
for the three months and nine
months ended January 31, 2000
respectively 409 0 345 0
--------------------------------------
Income (loss) from discontinued
operations 456 (339) (230) 2,858
--------------------------------------
Net income (loss) 724 (328) 442 3,382
--------------------------------------
Net earnings (loss) per common
share-basic and diluted:
Income from continuing
operations per share $ .17 $ .01 $ .41 $ .32
Income (loss) from discontinued
operations .28 (.21) (.14) 1.77
---------------------------------------
Net income (loss) per common
share - basic and diluted .45 (.20) .27 2.09
---------------------------------------
Weighted average number of shares
outstanding 1,619,820 1,619,820 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)
<CAPTION>
Nine Months Ended
January 31,
-------------------
2000 1999
----- ----
(000's Omitted)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 724 $ 3,382
Adjustments to reconcile net
income to net cash provide (used)
in operating activities:
Gain on disposal of games business 0 (3,805)
Gain on disposal of games and
printing and envelope machinery
and equipment and inventories (345) 0
Depreciation and amortization 69 116
Changes in accounts receivable,
inventories, other assets,
accounts payable, accrued
accrued expenses, deferred
subscription revenue and
income tax payable (44) (59)
------ ------
Total provided cash (used) in operating
activities 404 (366)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (26) 0
Cash proceeds from sale of substantially
all the assets of the games division 0 6,000
Cash proceeds from sale of inventories
and equipment 803 15
------ ------
Total cash provided by investing
activities 777 6,015
------ ------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 1,181 5,649
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 7,321 1,738
------ ------
CASH AND CASH EQUIVALENTS
END OF PERIOD $ 8,502 $ 7,387
------ ------
<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 nine months ended January 31, 2000 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.
On January 24, 2000, the Company incorporated a new subsidiary, Girlslife.com in
Maryland. There has been no business transacted by Girlslife.com for the three
months or nine months ending January 31, 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. 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.
Net sales and income from discontinued operations of the games division are as
follows:
Three Months Ended Nine Months Ended
January 31, January 31,
2000 1999 2000 1999
- ----------------------------------------------------------------------------
Net sales $ 0 $ 0 $ 0 $ 214
Gain from discontinued
operations 0 0 0 3,464
<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.
Estimated accrued salary and rent expense associated with the closing of the
printing and envelope division were adjusted during the quarter ended January
31, 2000 upon final settlement of the obligations. The adjustment (net of tax)
resulted in $47,000 of income being recognized during the third quarter.
As of January 31, 2000, accrued rent of $25,000 remains for the portion of the
Company's office, warehouse, and manufacturing facilities which were utilized by
the discontinued segments.
In August 1999, the Company estimated a loss on the disposal of the printing and
envelope division to be $228,000 (net of tax benefit of $117,000). The
estimated loss was based on information available to management at that time and
included the writedown of the commercial printing equipment and inventory to an
estimated market value expected to be realized at auction. Upon actual
disposition of those assets during the third quarter of fiscal 2000, a gain in
the amount of $409,000 was realized (net of tax expense of $211,000) and
$345,000 (net of tax expense of $178,000) for the nine months ended January 31,
2000.
Net sales and income from discontinued operations of the printing and envelope
division are as follows:
Three Months Ended Nine Months Ended
January 31, January 31,
2000 1999 2000 1999
- ----------------------------------------------------------------------------
Net sales $ 0 $ 337 $ 516 $ 1,513
Gain on disposal of printing
and envelope segment 620 0 523 0
Income (loss) from discontinued
operations 72 (608) (872) (1,012)
<PAGE>
NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at January 31, 2000:
Accounts Receivable-Games $ 703
-Printing 2,416
-publishing 447,363
-----------
Less: 450,482
Allowance for doubtful accounts ( 53,119)
-----------
$ 397,363
===========
The Accounts Receivable-Games in the amount of $703 and The Accounts Receivable-
Printing in the amount of $2,416 is fully reserved in the Allowance for doubtful
accounts.
NOTE D - INVENTORIES
Inventories in the amount of $23,000 of the printing and envelope division
was sold or auctioned off in the third quarter of FY 2000.
<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 operating subsidiary, Girls' Life, Inc.,
that publishes a magazine.
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. In order to facilitate Year 2000
compliance, the Company accelerated publication of the February/March 2000
edition of Girls' Life to December 1999. See "Year 2000 Disclosure."
RESULTS FOR THE THIRD QUARTER OF FISCAL YEAR 2000 AND 1999
Sales of Girls' Life in the third quarter of fiscal 2000 increased by $401,000
or 48% from the third quarter of fiscal 1999. The increase in sales for Girls'
Life relates primarily to the inclusion of sales for the February/March 2000
edition of Girls' Life magazine in the third quarter of fiscal year 2000.
Income and related costs associated with a Girls' Life issue are recognized
upon shipment of the issue. Due to concerns surrounding the year 2000, the
production and shipment of the February/March issue was accelerated and shipped
in December 1999. As a result, the sales and related costs associated with that
issue are reflected in the third quarter of fiscal 2000 operations, rather than
the forth quarter, as it has been historically. This is not expected to be a
recurring event in future periods. Newsstand sales and advertising income also
increased for the third quarter as a result of the February/March issue being
shipped in December 1999.
Cost of goods sold as a percent of sales was 63% in the third quarter of fiscal
2000 compared to 78% in the third quarter of fiscal 1999. The decrease in
fiscal 2000 was primarily due to the increased subscription and newsstand sales
and increased income from advertising which permitted the Company to achieve
certain economies of scale in fixed and other varible costs associated with the
printing and shipment of the two magazine issues in the third quarter of fiscal
2000.
Gross profit increased by $269,000 or 144% during the third quarter of fiscal
2000 compared to the third quarter of fiscal 1999. Gross margin was 37% during
the third quarter of fiscal 2000 as compared to 22% during the third quarter of
fiscal 1999.
Selling, general and administrative expenses as a percentage of sales were 12%
for the third quarter of fiscal 2000 and 25% for the third quarter of fiscal
1999. The decrease in fiscal 2000 was primarily due to less advertising and
promotional expenses for the third quarter of fiscal 2000 as compared to the
third quarter of fiscal 1999 which fully offset an increase in corporate
overhead charged to Girls' Life as a result of the closing of the printing and
envelope division.
Other income increased $70,000 in the third quarter of fiscal 2000 compared to
the third quarter of fiscal 1999. The increase was primarily due to the
increase in interest income.
Discontinued operations had no gains or losses from the games division for the
third quarter of fiscal 2000 because the games division was sold to Hasbro, Inc.
in October 1998. Operating income for the printing and envelope division was
$47,000 (net of tax) for the third quarter of fiscal 2000 as compared to a
$401,000 loss (net of tax) for the third quarter of fiscal 1999. Estimated
accrued salary and rent expense associated with the closing of the printing and
envelope division were adjusted during the quarter ended January 31, 2000 upon
final settlement of such obligations. The adjustment (net of tax) resulted in
$47,000 of income being recognized during the third quarter.
During the third quarter of fiscal 2000, the sale of the printing and envelope
division assets was completed. The sale consisted primarily of equipment and
limited inventory. The resulting gain of $409,000 (net of tax) realized during
the three months ended January 31, 2000 was greater than anticipated. Certain
adjustments to amounts accrued in previous quarters caused the gain realized
during the third quarter to exceed the gain for the nine-month period.
RESULTS FOR THE FIRST NINE MONTHS OF FISCAL YEAR 2000 AND 1999
Sales of Girls' Life during the nine months of fiscal 2000 increased by $599,000
or 22% from the nine months of fiscal 1999. The increase in sales for Girls'
Life relates primarily to the inclusion of sales for the February/March 2000
edition of Girls' Life magazine in the third quarter of fiscal year 2000. Income
and related costs associated with an issue are recognized upon shipment of the
issue. Due to concerns surrounding the year 2000, the production and shipment
of the February/March issue was accelerated and shipped in December 1999. As a
result, the sales and related costs associated with that issue are reflected in
the third quarter of fiscal 2000 operations, rather than the forth quarter, as
it has been historically. This is not expected to be a recurring event in
future periods. Newsstand sales and advertising income also increased for the
nine months as a result of the February/March issue being shipped in December
1999.
Cost of goods sold as a percent of sales was 66% during the nine months of
fiscal 2000 compared to 65% in the nine months of fiscal 1999. The increase in
fiscal 2000 was primarily due to increased subcontractors costs, shipping and
delivery expenses, increased labor costs for additional personnel in the
publishing division and general corporate overhead that was previously charged
to the former games business printing and envelope business and are currently
being charged to the publishing business.
Gross profit increased by $168,000 or 17% during the nine months of fiscal 2000
compared to the nine months of fiscal 1999. Gross margin was 34% during the
nine months of fiscal 2000 compared to 35% during the nine months of fiscal
1999.
Selling, general and administrative expenses as a percentage of sales were 11%
for the nine months of fiscal 2000 and 18% for the nine months of fiscal 1999.
The decrease in fiscal 2000 was primarily due to less advertising and
promotional expenses for the nine months of fiscal 2000 as compared to the nine
months of fiscal 1999 which fully offset an increase in corporate overhead
charged to Girls' Life as a result of the closing of the printing and envelope
division.
Other income increased $201,000 during the nine months of fiscal 2000 compared
to the nine months of fiscal 1999. The increase was due primarily to the
increase in interest income and sale of equipment.
Discontinued operations had no gains or losses from the games division for the
nine months of fiscal 2000 because the games division was sold to Hasbro, Inc.
in October 1998. Operating losses for the printing and envelope division was
$575,000 (net of tax) for the nine months of fiscal 2000 as compared to $668,000
for the nine months of fiscal 1999.
During the nine months ended January 31, 2000, the sale of the printing and
envelope division was completed. The sale consisted primarily of equipment and
limited inventory. The resulting gain of $345,000 (net of tax) was greater than
anticipated.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2000, the Company has cash and cash equivalents of approximately
$8,502,000 an increase of $1,181,000 from the amount at April 30, 1999. The
increase resulted primarily from cash received from the sale of machinery &
equipment and inventories from the closed printing and envelope operations and
interest income. The Company's cash and cash equivalents are subject to
variation based upon the timing of receipts and the payment of payables.
On November 2, 1999, remaining inventories from the printing and envelope
division and remaining equipment from the printing and envelope division and the
games division was auctioned off. Net proceeds received from the sale of the
inventories and equipment was $803,000.
At January 31, 2000, the Company has no debt with third party lenders.
<PAGE>
YEAR 2000 DISCLOSURE
As of the date of this report, no Y2K problems have been detected in the systems
used by the Company, and the Company is not aware of any material Y2K problems
encountered by customers or suppliers of the Company that would be likely to
adversely affect the Company. Although considered unlikely, unanticipated
problems in the Company's business process, including problems associated with
non-compliant third parties and disruptions to the economy in general, could
still occur.
As of January 31, 2000, the Company has incurred direct Year 2000 compliance
costs of approximately $35,000, 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 completed its Year
2000 compliance program during the second quarter of fiscal 2000.
<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
------ -----------
21. Subsidiaries of the Registrant
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.
MONARCH SERVICES, INC.
Date March 14, 2000 By: /s/ A. Eric Dott
----------------- -------------------------------
A. Eric Dott
Chairman of the Board
Date March 14, 2000 /s/ A. Eric Dott
----------------- -------------------------------
A. Eric Dott
Chairman of the Board
(Principal Executive Officer)
Date March 14, 2000 /s/ Marshall Chadwell
----------------- -------------------------------
Marshall Chadwell, Controller
Chief Financial Officer
(Principal Accounting and
Financial Officer)
<PAGE>
EXHIBIT INDEX
21 Subsidiaries of the Registrant
27 Financial Data Schedule
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT MONARCH SERVICES, INC.
Percent
Jurisdiction of Voting
in Which Securities
NAME OF CORPORATION Incorporated Owned
- --------------------------------------------------------------------
Girls' Life, Inc. Maryland 100%
Creampuffs, Inc. Maryland 100%
Broken Windows, Inc. Maryland 100%
Girlslife.com, Inc. Maryland 100%
<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 January 31,
2000, and is qualified in its entirety by reference to such financial statements
and the notes thereto.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Apr-30-2000
<PERIOD-START> May-01-1999
<PERIOD-END> Jan-31-2000
<CASH> 8,502
<SECURITIES> 48
<RECEIVABLES> 397
<ALLOWANCES> 53
<INVENTORY> 0
<CURRENT-ASSETS> 8,971
<PP&E> 648
<DEPRECIATION> 437
<TOTAL-ASSETS> 9,267
<CURRENT-LIABILITIES> 2,079
<BONDS> 0
0
0
<COMMON> 527
<OTHER-SE> 3,378
<TOTAL-LIABILITY-AND-EQUITY> 9,267
<SALES> 3,363
<TOTAL-REVENUES> 3,625
<CGS> 2,227
<TOTAL-COSTS> 2,607
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,018
<INCOME-TAX> 346
<INCOME-CONTINUING> 672
<DISCONTINUED> (230)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 442
<EPS-BASIC> .27
<EPS-DILUTED> .27
</TABLE>
