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Monarch Services Inc – ‘10KSB40’ for 4/30/00

On:  Friday, 7/28/00, at 3:14pm ET   ·   For:  4/30/00   ·   Accession #:  202685-0-6   ·   File #:  0-08512

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  As Of                Filer                Filing    For·On·As Docs:Size

 7/28/00  Monarch Services Inc              10KSB40     4/30/00    4:54K

Annual Report — Small Business — [x] Reg. S-B Item 405   —   Form 10-KSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB40     Annual Report -- Small Business -- [x] Reg. S-B       27    109K 
                          Item 405                                               
 2: EX-23.1     Letter of Consent From Deloitte & Touche LLP           1      5K 
 3: EX-23.2     Letter of Consent From Stegman & Company               1      5K 
 4: EX-27       Financial Data Schedule (Pre-XBRL)                     2±     8K 


10KSB40   —   Annual Report — Small Business — [x] Reg. S-B Item 405
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
2Item 1. Description of Business
4Item 2. Description of Property
"Item 4. Submission of Matters to A Vote of Security-Holders
5Item 5. Market for Common Equity and Related Stockholder Matters
6Item 5A. Certain Cautionary Information
8Item 6. Management's Discussion and Analysis or Plan of Operation
10Item 7. Financial Statements
11Item 7. FINANCIAL STATEMENTS (Continued)
24Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
"Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
"Item 10. Executive Compensation
"Item 11. Security Ownership of Certain Beneficial Owners and Management
25Item 12. Certain Relationships and Related Transactions
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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 ]
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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.
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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
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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
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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.
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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.
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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.
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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.
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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.
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[Download Table] Item 7. FINANCIAL STATEMENTS Consolidated Statement of Financial Condition ------------------------------------------------------------ April 30, 2000 ------------------------------------------------------------ (000's Omitted) 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.
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[Download Table] Item 7. FINANCIAL STATEMENTS (Continued) Consolidated Statements of Operations ----------------------------------------------------------------------- Years Ended April 30, 2000 1999 ----------------------------------------------------------------------- (000's Omitted, except share information) 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.
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[Download Table] Item 7. FINANCIAL STATEMENTS (Continued) Consolidated Statements of Changes in Stockholders' Equity ------------------------------------------------------------------ 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 --------- ------- -------- ------ -------- ------------ 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.
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[Download Table] Item 7. FINANCIAL STATEMENTS (Continued) Consolidated Statements of Cash Flows ---------------------------------------------------------------- Year Ended April 30, 2000 1999 ---------------------------------------------------------------- (000's Omitted) 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.
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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.
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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.
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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.
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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)
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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.
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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.
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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.
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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.
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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
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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
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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.
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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.
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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
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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

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7/20/0015
6/23/0022
For Period End:4/30/0012210KSB/A,  DEF 14A,  PRE 14A
3/2/0025S-8
2/29/0024258-K
1/31/00212510QSB
1/24/0014
11/2/992
10/31/992110QSB
8/20/99217
7/31/992110QSB
7/22/992223
4/30/9982510KSB40
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10/31/982110QSB
10/27/98217
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6/19/985
5/1/98128-K
4/30/98242510KSB40,  10KSB40/A
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11/26/9714
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