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, 2005 COMMISSION FILE NO. 000-08512
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MONARCH SERVICES, INC.
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(Exact name of small business issuer as specified in its charter)
Maryland 52-1073628
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation)
4517 Harford Road, Baltimore, Maryland 21214
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code 410-254-9200
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Not applicable
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Former name, former address and former fiscal year, if changed since last
report.
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES [ X ] NO [ ]
As of July 31, 2005, the number of shares outstanding of the issuer's
common stock was 1,619,620 shares.
Transitional Small Business Issue Format (check one):
YES [ ] NO [ X ]
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
MONARCH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
July 31, 2005
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(000's Omitted)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 221
Accounts receivable, net 198
Marketable securities available
for sale 44
Inventory 43
Prepaid publishing expenses 270
Other prepaid expenses 49
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TOTAL CURRENT ASSETS 825
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PROPERTY AND EQUIPMENT
Machinery, equipment, furniture and fixtures 796
Leasehold improvements 324
Restaurant buildings and improvements 2,466
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3,586
Less accumulated depreciation (844)
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2,742
Land 321
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TOTAL PROPERTY AND EQUIPMENT - NET 3,063
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Certificates of Deposit 743
Trademarks - net 6
Liquor license 200
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TOTAL ASSETS $4,837
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 507
Accrued expenses 85
Deferred subscription revenue (current) 663
Catering advance payments 11
Deferred gift card revenue 32
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TOTAL CURRENT LIABILITIES 1,298
Deferred subscription revenue (non-current) 841
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TOTAL LIABILITIES 2,139
STOCKHOLDERS' EQUITY
Common Stock - par value $.001 per share:
Authorized - 10,000,000 shares;
shares outstanding 1,619,620 2
Capital surplus 3,781
Retained earnings (1,087)
Accumulated other comprehensive income 2
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TOTAL STOCKHOLDERS' EQUITY 2,698
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,837
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See notes to Consolidated Financial Statements.
MONARCH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER
COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended
July 31,
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2005 2004
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(000's omitted, except per share data)
Net Sales - publishing $ 590 $ 722
Net Sales - restaurant 381 460
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971 1,182
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Cost of goods sold - publishing 657 678
Cost of goods sold - restaurant 404 493
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1,061 1,171
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Gross (loss) profit from continuing
operations (90) 11
Selling, general and
administrative expenses 316 307
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Loss before other income
and income taxes (406) (296)
Other income:
Investment and interest income 9 18
Other 2 0
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11 18
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Loss from continuing operations
before income tax (395) (278)
Income tax expense (benefit) 0 0
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Net loss from
continuing operations (395) (278)
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Discontinued Operations:
Operating loss from "Adam Leaf and
Bean" (net of income tax benefit
of $0 and $0) for the quarter
ended July 31, 2004 0 (99)
Loss on disposal of assets
from "Adam Leaf and Bean" (net
of income tax expense $0) for
the quarter ended July 31, 2004 0 (59)
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Loss from discontinued operations 0 (158)
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Net loss $ (395) $ (436)
Other comprehensive income
net of tax
Net unrealized holding gains 7 -
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Comprehensive income $ (388) (436)
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Net loss per common share
basic and diluted:
Loss from continuing operations
per share $ (0.24) $ (0.17)
Loss from discontinued operations 0.00 (0.10)
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Net loss per common share -
basic and diluted $ (0.24) $ (0.27)
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Dividends per share $ .00 $ .00
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Weighted average number of
shares outstanding - basic and diluted 1,619,620 1,619,620
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See Notes to Consolidated Financial Statements.
MONARCH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
July 31,
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2005 2004
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(000's Omitted, except per share date)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (395) $ (436)
Adjustments to reconcile net loss ------ ------
to net cash used by operating
activities:
Depreciation and amortization 38 33
Increase/decrease in operating
assets and liabilities:
Accounts receivable,
inventory, prepaid expenses,
accounts payable, accrued
expenses and deferred
subscription revenue 360 250
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Total cash provided (used) by operating
activities 3 (153)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment,
intangible assets and improvements (11) (3)
Maturity/redemption of certificates
of deposit 117 82
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Total cash provided by
investing activities 106 79
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CASH FLOWS FROM FINANCING ACTIVITIES:
None 0 0
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NET INCREASE (DECREASE)IN CASH AND CASH
EQUIVALENTS 109 (74)
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 112 155
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CASH AND CASH EQUIVALENTS
END OF PERIOD $ 221 $ 81
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See Notes to Consolidated Financial Statements.
MONARCH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include Monarch
Services, Inc., ("Monarch") and its wholly-owned active subsidiaries, Girls'
Life, Inc., Peerce's Plantation GL, LLC and the discontinued operations of Adam
Leaf and Bean, Inc. (collectively referred to herein as the "Company"). The
unaudited consolidated financial statements have been prepared in accordance
with the instructions to Form 10-QSB and do not include all of the information
and disclosures required by accounting principles generally accepted in the
United States of America for complete financial statements. Certain
reclassifications have been made to amounts previously reported to conform
with the current classifications. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. All material intercompany balances between
Monarch and its subsidiaries have been eliminated in consolidation. Operating
results for the three months ending July 31, 2005 and the three months ending
July 31, 2004 are not necessarily indicative of the results that may be
expected for the fiscal year ending April 30, 2006. There has been no
significant change to the Company's accounting policies as disclosed in
the annual report. 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, 2005.
Publishing Business
Girls' Life magazine subscriptions are sold through traditional sources
such as direct-mail solicitation, insert cards and subscription agents.
The magazine is also sold on newsstands and subscriptions can be obtained
or renewed through the Internet on the Girls' Life website www.girlslife.com.
Newsstand copies are distributed nationally and internationally.
The subscription price of a one year Girls' Life subscription is between
$14.95 and $19.85; however, the amount realized by the Company is a small
portion of this amount if a subscription service is used. The suggested
newsstand price of a single issue of Girls' Life in the United States is
$3.50.
Magazines mailed to the individual subscriber or to our newsstand distributor
are not returned to us. If a subscriber cancels a subscription, the
subscriber is reimbursed for the balance of unshipped magazines for the
subscription period on a pro-rated basis. Magazines shipped to the newsstand
distributor which are not sold on the newsstand are destroyed by the newsstand
distributor and not returned to us.
The average number of magazines sold for one issue during the first three
months of fiscal 2006 is set forth in the following table.
Distribution Channel Number of Magazines Distributed
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Newsstand Sales 60,000
Subscription Sales 290,000
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Total Paid Circulation 350,000
Complimentary Copies 1,000
The following table sets forth the average number of subscriptions sold in
the domestic and international markets for the first three months of fiscal
year 2006.
Geographic Distribution Number of Subscriptions Sold
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United States 288,000
International 2,000
Our magazine is generally protected by registered trademarks and copyrights
in the United States and foreign countries to the extent that such protection
is available.
Retaurant Business
In June 2001, we purchased three adjoining parcels of real estate located
in Baltimore County, Maryland for approximately $2 million in cash. The
acquisition included "Peerce's Plantation", a 350 seat fine dining restaurant,
catering facility and bar with liquor license, off premise sales, an adjoining
6,000 square-foot house and 14.74 acres with a horse stable zoned for
residential development. We continue to consider various uses for the property
which includes formal dining and entertainment. Renovations of Peerce's
Plantation began in the spring of 2002 and were completed in September 2003.
The restaurant and bar opened for business on September 26, 2003. The catering
business began scheduling weddings, business meetings and other catered parties
early in September 2003. The restaurant and catering menus are based on
traditional Maryland fare with a European flavor and prices for entrees and
other items were set to be competitive in the upscale restaurant market place
in central Maryland. As of July 31, 2005, we have capitalized approximately
$1,015,000 in improvements and $360,000 in equipment for Peerce's Plantation
in addition to our initial purchase.
Discontined Retail Business
In November 2001, we opened "Adam Leaf and Bean", a tobacco shop selling
cigars, tobacco and smokers' accessories. The tobacco shop also included
a coffee shop and snack bar. In the first quarter of fiscal year 2004,
we closed the coffee shop and snack bar. We determined that the sales
volume from the coffee shop and snack bar did not justify the cost of labor
needed to staff that part of the business. Despite some success in attracting
the target market, Adam Leaf and Bean was unable to generate significant or
steadily increasing revenues since its opening. Without increasing revenues,
we determined that Adam Leaf and Bean was no longer viable. As a result, we
closed Adam Leaf and Bean effective August 19, 2004.
NOTE B - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at July 31, 2005
(in thousands).
Accounts receivable - publishing $ 248
Less: Allowance for doubtful accounts (50)
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Total accounts receivable $ 198
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NOTE C - INVENTORIES
The Company values inventories at the lower of average cost (first-in,
first-out) or market. Inventory at July 31, 2005 is primarily related
to Peerce's Plantation operations.
NOTE D - PREPAID PUBLISHING EXPENSES
Total prepaid expenses for Girls' Life, Inc. for the period ending July
31, 2005 was $270,000. The prepaid expenses consist of expenses paid in
advance for our August/September 2005 issue of Girls' Life magazine.
$148,000 was prepaid for paper used for printing of Girls' Life magazines,
$81,000 in prepaid postage, $35,000 for prepaid magazine expenses and $6,000
prepaid for printing expenses. Certain expenses are paid prior to the printing
and shipping of each issue of the magazine. Revenues from the August/September
2005 issue of Girls' Life magazine will be recognized in our second quarter
of fiscal year 2006.
NOTE E - LIQUOR LICENSE
In June 2001, we purchased three adjoining parcels of real estate located
in Baltimore County, Maryland for $1.991 million in cash. The acquisition
included "Peerce's Plantation", a 350 seat fine dining restaurant, catering
facility and bar with liquor license, off premise sales, an adjoining 6,000
square-foot house and 14.74 acres with a horse stable zoned for residential
development. The $1.991 million was broken down to establish a fair market
value for each segment of the purchase. The fair market value of the liquor
license was established at $200,000. There has been no amortization of the
liquor license from the date of the original purchase.
NOTE F - INCOME TAXES
The Company has only recorded tax benefits to the extent carryback claims
are available, and has not recorded any tax benefit associated with the
future realization of operating losses.
NOTE G - DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS OF ADAM LEAF AND BEAN
Effective August 19, 2004, "Adam Leaf and Bean" tobacco shop was closed.
All sales and costs associated with Adam Leaf & Bean have been reclassified
as Discontinued Operations for the three months ending July 31, 2004. There
were no sales or costs associated with Adam Leaf & Bean for the three months
ending July 31, 2005.
Net sales and losses from discontinued operations of "Adam Leaf & Bean"
tobacco shop are as follows (in thousands):
Three Months Ended July 31,
2005 2004
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Net sales $ 0 $ 92
Loss from discontinued operations 0 (99)
Loss on disposal of assets 0 (59)
NOTE H - STOCK-BASED COMPENSATION ARRANGEMENTS
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock-based compensation arrangements. Accordingly, no
compensation expense has been recognized. For disclosure purposes,
pro-forma results have been determined based on the fair value method
consistent with SFAS No. 123, "Accounting for Stock-Based Compensation"
and SFAS No. 148 "Accounting for Stock-Based Compensation - Transition
and Disclosure". No stock-based employee compensation cost is reflected
in the consolidated statements of operations, as all options granted
under those plans had an exercise price at least equal to the market
value of the underlying common stock on the date of grant. The following
table illustrates the effect on net loss and net loss per share if the
Company had applied the fair value recognition provisions of SFAS
No. 123 "Accounting for Stock-Based Compensation", to stock-based
employee compensation for the three months ended July 31, 2005 and
2004.
In December 2004, the FASB issued SFAS No. 123R (as amended) which
replaces SFAS No. 123 and supersedes APB No. 25. SFAS No. 123R requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair
values starting with the next fiscal year that begins after December 15,
2005. The pro forma disclosures previously permitted under SFAS No. 123 no
longer will be an alternative to financial statement recognition. The
Company is required to adopt SFAS No. 123R beginning May 1, 2006. Under
SFAS No. 123R, the Company must determine the appropriate fair value model
to be used for valuing share-based payments, the amortization method for
compensation cost and the transition method to be used at date of adoption.
The transition methods include prospective and retroactive adoption options.
The Company is evaluating the requirements of SFAS No. 123R. However, the
Company expects that the adoption of SFAS No. 123R will not have a material
impact on its consolidated results of operations and earnings per share.
The Company has not yet determined the method of adoption or the effect of
adopting SFAS No. 123R, and it has not determined whether the adoption will
result in amounts that are similar to the current pro forma disclosures
under SFAS No. 123. The Company also has not yet determined the impact of
SFAS No. 123R on its compensation policies or plans, if any.
Three months Ended July 31,
2005 2004
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(In thousands, except per share data)
Net loss, as reported $ (395) $ (436)
Less pro forma stock-based employee compensation
expense determined under fair value based
method, net of related tax effects 0) (1)
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Pro forma net loss $ (395) $ (437)
====================
Net loss per share:
Basic - as reported $ (0.24) $ (0.27)
Basic - pro forma $ (0.24) $ (0.27)
Diluted - as reported $ (0.24) $ (0.27)
Diluted - pro forma $ (0.24) $ (0.27)
NOTE I - SEGMENT INFORMATION
With the closing of "Adam Leaf and Bean" in August 2004, the Company
currently operates in two industry segments. Our primary operations during
the three months ending July 31, 2005 was the publication of "Girls' Life"
magazine in the publishing segment and Peerce's Plantation restaurant, bar
and catering facility in the restaurant segment.
Our primary operations during the three months ending July 31, 2004 was the
publication of "Girls' Life" magazine in the publishing segment, Peerce's
Plantation restaurant, bar and catering facility in the restaurant segment
and the discontinued operations of "Adam Leaf and Bean" tobacco shop in the
retail segment. All sales and costs for Adam Leaf and Bean have been
classified as Discontinued Operations for the three months ending July
31, 2004.
Segment Information for the Quarter Ending July 31, 2005
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(in thousands)
Publishing Restaurant Other Total
Revenues from external customers $ 590 $ 381 $ - $ 971
Intersegment revenues - - - -
Interest Income - - 9 9
Depreciation and amortization 3 28 7 38
Segment profit (loss) before tax (156) (74) (165) (395)
Expenditures for segment assets 2 4 5 11
Segment Information for the Quarter Ending July 31, 2004
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(in thousands)
Publishing Restaurant Other Total
Revenues from external customers $ 722 $ 460 $ - $ 1,182
Intersegment revenues - - - -
Interest Income - - 18 18
Depreciation and amortization 3 27 3 33
Segment profit (loss) before tax (37) (81) (160) (278)
Expenditures for segment assets - 3 - 3
ITEM 2. MONARCH SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN CAUTIONARY INFORMATION
This Report on Form 10-QSB contains forward-looking statements. Forward-
looking statements include, among other things, statements concerning sales
growth in the publishing and restaurant segments, expenditures related to
increased or decreased costs of materials, and estimated expenditures for
possible new product lines or business opportunities. In some cases, forward-
looking statements can be identified by terminology such as "may," "will,"
"could," "should," "expects'", "plans," "anticipates," "believes," "estimates,"
"projects," "predicts," "potential," or "continue" or the negative of these
terms or other similar terminology. There are various factors that could
cause actual results to differ materially from those suggested by the forward-
looking statements; accordingly, there can be no assurance that such indicated
results will be realized. These factors are discussed elsewhere herein and
in our annual report on Form 10-KSB for the fiscal year ended April 30, 2005
and in other reports filed by us from time to time with the SEC.
APPLICATION OF IMPORTANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions of Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all normal and recurring adjustments and accruals
considered necessary for a fair presentation have been included. Operating
results for the three month period ended July 31, 2005 are not necessarily
indicative of the results that may be expected for the year ended April 30,
2006. For further information, refer to the financial statements and footnotes
thereto included in the Company's annual report incorporated by reference in
the Form 10-KSB for the year ended April 30, 2005.
These consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America.
Application of these principles requires management to make estimates,
assumptions, and judgments that affect the amounts reported in the financial
statements and accompanying notes. These estimates, assumptions, and
judgments are based on information available as of the date of the financial
statements; accordingly, as this information changes, the financial statements
could reflect different estimates, assumptions, and judgments. Certain
policies inherently have a greater reliance on the use of estimates,
assumptions, and judgments and as such have a greater possibility of producing
results that could be materially different than originally reported.
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements which have been prepared in
accordance with US generally accepted accounting principles. The preparation of
these financial statements requires us to make estimates and judgements that
affect the reported amounts of income from newsstand sales and royalty income
from a licensing agreement with a marketer and distributor of a line of beauty
and bath products using the Girls' Life name. On an on-going basis we evaluate
our estimates for each quarter of our fiscal year and for our fiscal year end.
These estimates, assumptions, and judgments are based on information available
as of the date of the financial statements; accordingly, as this information
changes, the financial statements could reflect different estimates, assumptions
and judgments. We believe that our most important accounting policies relate to
revenue associated with the Girls' Life segment of our business. Actual results
may differ from these estimates, assumptions and judgments.
Revenue Recognition
Newsstand revenues in our publishing segment are estimated based on
information supplied to us by our newsstand distributor and from actual
cash payments received during our fiscal year. These estimates, assumptions,
and judgments are based on information available as of the date of the
financial statements; accordingly, as this information changes, the financial
statements could reflect different estimates, assumptions, and judgments.
Royalty revenues in our publishing segment are estimated based on information
supplied to us by the distributor of the bath and beauty products using the
Girls' Life name and from cash payments received during the fiscal year.
Since the licensing agreement was signed during our fiscal year ending April 30,
2005, we do not have a history of the amount of royalty income we can expect to
received in future quarters or years. These estimates, assumptions, and
judgments are based on information available as of the date of the financial
statements; accordingly, as this information changes, the financial statements
could reflect different estimates, assumptions, and judgments.
There are no significant estimates or assumptions in our financial statements
relating to Peerce's Plantation GL, LLC.
RESULTS OF OPERATIONS
We have two operating subsidiaries. Girls' Life, Inc., publishes a magazine,
and Peerce's Plantation GL, LLC, operates a restaurant, catering facility
and bar open to the general public.
The revenues of Girls' Life, Inc. are seasonal in nature. Girls' Life
magazine is published six times per year. Our 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. There was one issue of Girls' Life
magazine in the quarters ended July 31, 2005 and 2004, respectively. Newsstand
revenue and Cost of Goods Sold for the one issue of Girls' Life magazine sold on
the newsstand for the quarters ending July 31, 2005 and 2004, respectively, was
estimated based on information furnished to us by our distribution agent which
distributes Girls' Life newsstand copies nationally and internationally. We
make adjustments quarterly and annually to the actual revenues based on cash
payments we actually receive, less fees and expenses deducted by our
distribution agent. Final adjustments with respect to an issue of Girls'
Life are generally completed within six months of the appearance of such
issue on newsstands.
The revenues of Peerce's Plantation restaurant, bar and catering facility are
also seasonal in nature. The experience of our management team suggests that
fine dining restaurants are particularly popular during the November/December
holiday season and are less popular during the winter months of January through
March. Also, our catering department, a substantial portion of whose business
consists of weddings and holiday parties, is seasonal with above average
business in the November/December holiday season and during the Spring and
Summer wedding season and below average business in the Winter months of
January through March. We can provide no assurance that the business is in
fact, seasonal or that if it is seasonal, its seasonality will follow the
trends described above.
Despite some success in attracting the target market, Adam Leaf and Bean was
unable to generate significant or steadily increasing revenues since its
opening. As a result, we closed Adam Leaf and Bean effective August 19, 2004.
Sales of $92,000 and costs of $191,000 have been classified as a loss from
discontinued operations in the financial statements for the quarter ending
July 31, 2004. There were no sales or costs associated with Adam Leaf and
Bean for the quarter ending July 31, 2005.
For the purpose of management's discussion of the results of operations of
fiscal 2006 compared to fiscal 2005, references to fiscal 2006 are to the
three months ending July 31, 2005, and references to fiscal 2005 are to the
three months ending July 31, 2004.
RESULTS FOR THE FIRST QUARTER OF FISCAL YEAR 2006 AND 2005
Combined sales for the two operating subsidiaries decreased $211,000 or
18%, to $971,000 for first quarter of fiscal year 2006 from the first
quarter of fiscal year 2005. The decrease in combined sales is a result
of a decrease in sales from Girls' Life in the amount of $132,000 and a
decrease in sales from Peerce's Plantation in the amount of $79,000.
Publishing sales of Girls' Life decreased $132,000, or 18%, to $590,000 in
the first quarter of fiscal year 2006 compared to the first quarter of fiscal
year 2005. The net decrease in sales relates primarily to decreases in all
sales categories which include subscription revenue, advertising revenue,
newsstand revenue, revenues from third parties for editorial services and
miscellaneous other revenue.
Subscription revenue decreased by $15,000, or 5%, to $294,000 in the first
quarter of fiscal year 2006 compared to the first quarter of fiscal year
2005. The net decrease in subscription revenue is attributable to fewer
subscribers in the first three months fiscal year 2006 compared to the
first three months of fiscal year 2005. The Company plans to increase the
subscription base by increasing direct mail efforts during fiscal year 2006.
Direct mail includes cards sent to potential new subscribers and renewal
notices to current subscribers when they are approximately half-way into
their current subscription period.
Newsstand revenue decreased by $3,000, or 3%, to $97,000 in the first
quarter of fiscal year 2006 compared to the first quarter of fiscal year
2005. We believe that the decrease in newsstand revenue is attributed to
a slight variance in estimates that we use for newsstand revenues based
on information supplied to us by our newsstand distributor.
Advertising revenue decreased by $2,000, or 1%, to $160,000 in the first
quarter of fiscal year 2006 from the prior comparable period. The decrease
in advertising revenue is due to different mixes of advertisers and
advertising rates in the the first quarter of fiscal year 2006 compared
to the three months of fiscal year 2005. We also believe that advertising
revenue will increase for future issues of the magazine during fiscal year
2006 due to an industry-wide increase in the demand for advertising
because of the current recovering economy in the United States.
Revenue from editorial services to third parties decreased by $77,000, or
69%, to $35,000 in the first quarter of fiscal year 2006 compared to the
first quarter of fiscal year 2005. Revenue from third parties typically
fluctuates from quarter to quarter and year to year based on the editorial
needs of the third parties.
Miscellaneous revenue had a net decrease of $36,000, or 92%, to $3,000
in the first quarter of fiscal year 2006 compared to $39,000 in the first
quarter of fiscal year 2005. Miscellaneous revenue includes royalty income,
list rental income and other miscellaneous revenue accounts. The decrease
in miscellaneous revenue was primarily due to a decrease in list rental
revenue which varies from quarter to quarter.
Sales for Peerce's Plantation restaurant, catering and bar, decreased
$79,000, or 17% to $381,000 in the first quarter of fiscal year 2006
compared to the first quarter of fiscal year 2005. This decrease in sales
was primarily due to fewer customers in the restaurant segment of the
business. Catering sales was approximately the same in the current
quarter but bar sales increased in the current quarter.
Restaurant sales decreased $85,000, or 28%, to $215,000 in the first
quarter of fiscal year 2006 compared to the first quarter of fiscal year
2005. This decrease in sales was primarily due to fewer restaurant
customers in the first quarter of fiscal year 2006 compared to the first
quarter of fiscal year 2005.
Catering sales were $125,000 for the first quarter of fiscal year 2006
and for the first quarter of fiscal year 2005.
Bar sales increased $5,000, or 14%, to $41,000 in the first quarter of
fiscal year 2006 compared to the first quarter of fiscal year 2005. This
increase in sales in the first quarter of fiscal year 2005 compared to
the prior comparable period was primarily due to an increase in return
customers.
Total cost of goods sold, as a percent of total sales was 109%, or $1,061,000,
in the first quarter of fiscal year 2006 compared to 99%, or $1,171,000, in
the first quarter of fiscal year 2005.
Cost of goods sold for publishing, as a percent of sales was 111%, or
$657,000, in the first quarter of fiscal year 2006 compared to 94%, or
$678,000, in the first quarter of fiscal year 2005. The percentage increase
in the cost of goods sold for publishing was primarily attributable to
less sales in the first quarter of fiscal year 2006 compared to the first
quarter of fiscal year 2005. Certain costs within the cost of goods sold
category are fixed regardless of the sales amount. These costs include
labor, employee benefits, utilities, taxes, insurance, rent and depreciation.
Cost of goods sold for Peerce's Plantation, as a percent of sales was 106%,
or $404,000, in the first quarter of fiscal year 2006 compared to 107%, or
$493,000, in the first quarter of fiscal year 2005. The percentage decrease
in cost of goods sold for the restaurant and catering business was attributed
primarily to decreased individual costs within the cost of goods sold category
in first quarter of fiscal year 2006 compared to the first quarter of fiscal
year 2005. Direct material costs decreased $25,000 due to less sales in
the current quarter compared to the prior quarter. Labor costs decreased
$39,000 and other cost of goods sold expenses decreased $26,000. Labor
hours were reduced due to the lower sales and other costs were reduced
which decreased the overall costs in the cost of goods sold category.
Total selling, general and administrative expenses as a percentage of sales
were 33%, or $316,000, for the first quarter of fiscal year 2006 compared to
26%, or $307,000, in the prior comparable period. These expenses comprise
selling, general and administrative expenses for Girls' Life, Peerce's
Plantation and corporate overhead.
Selling, general and administrative expenses as a percentage of sales for
Girls' Life were 15%, or $90,000, for the first quarter of fiscal year 2006
compared to 11%, or $82,000 for the first quarter of fiscal year 2005. Selling,
general and administrative expenses increased by $8,000 in the current quarter
compared to the prior year quarter. Due to additional promotional efforts,
advertising and promotional costs increased $15,000 while other costs which
include travel expenses, taxes and insurance and office expenses, decreased
$7,000.
Selling, general and administrative expenses as a percentage of sales for
Peerce's Plantation were 13%, or $50,000, for the first quarter of fiscal year
2006 compared to 10%, or $48,000 for the first quarter of fiscal year 2005.
This increase in selling, general and administrative expenses was primarily due
to the lower sales in the current quarter compared to the prior year quarter.
Advertising and promotional expenses increased approximately $3,000 in the
current quarter compared to the prior quarter while other costs which include
travel expenses, office expenses and other miscellaneous accounts increased
approximately $1,000.
Selling, general and administrative expenses for corporate overhead decreased
by approximately $2,000 for the first quarter of fiscal year 2006 compared to
the first quarter of fiscal year 2005. Selling, general and administrative
expenses for corporate overhead was $176,000 in the first quarter of fiscal
year 2006 compared to $178,000 in the first quarter of fiscal year 2005. The
decrease in selling, general and administrative expenses was partially due to
additional overhead costs being allocated to both the publishing and restaurant
business. Salary costs decreased $7,000, while other costs which includes
outside services, utilities, taxes and insurance, rent and depreciation,
and other miscellaneous expenses increased $5,000.
All sales and costs for Adam Leaf and Bean have been classified as discontinued
operations for the quarter ending July 31, 2004. There were no sales or costs
for the quarter ending July 31, 2005 due to the closing of Adam Leaf and Bean
effective August 19, 2004.
Other income decreased $7,000 for the first quarter of fiscal year 2006
compared to the first quarter of fiscal year 2005. The decrease was primarily
due to a decrease in interest income due to a lower interest rate environment
and decreased cash balances.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2005, the Company has cash and cash equivalents of approximately
$221,000, an increase of $109,000 from the amount at April 30, 2005. The
increase resulted primarily from the redemption of certificates of deposit.
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, 2005, the Company had $743,000 in certificates of deposit with
a stated maturity date of November 26, 2006. To date, the Company has had
immediate access to these funds without incurring a penalty or a reduction
in the interest rate.
At July 31, 2005, the Company has no debt with third party lenders.
ITEM 3. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures(as defined in Sections 13a-15(e)
and 15d-15(e) of the Exchange Act) as of the end of the period covered by
this Form 10-QSB. The disclosure controls and procedures evaluation was
conducted under the supervision and with the participation of management,
including our CEO and CFO. Disclosure controls and procedures are controls
and procedures that are designed to ensure that information required to be
disclosed in our reports filed under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules
and forms. Disclosure controls and procedures are also designed to ensure
that such information required to be disclosed in our reports filed under the
Exchange Act is accumulated and communicated to our management, including the
CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure.
Based upon these evaluations, our CEO and CFO concluded that, as of the end
of the period covered by this Form 10-QSB, the disclosure controls and
procedures are effective in alerting them in a timely manner to material
information relating to our Company that is required to be included in our
periodic reports filed under the Exchange Act.
Changes in Internal Controls
Under the supervision and with the participation of our CEO and CFO, our
management has evaluated our internal controls and has concluded that there
were no changes in our internal controls over financial reporting that occurred
during our last fiscal quarter. Based on that evaluation, our CEO and CFO did
not identify any change in our internal controls over financial reporting that
has materially affected, or is reasonably likely to materially affect, our
internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 5
NONE / NOT APPLICABLE
ITEM 6. EXHIBITS
Exhibits
Number Description
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31.1 Certificate of the Company's CEO required by
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certificate of the Company's CFO required by
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certificate of the Company's CEO required by
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certificate of the Company's CFO required by
Section 906 of the Sarbanes-Oxley Act of 2002.
In accordance with the Securities Exchange Act of 1934, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MONARCH SERVICES, INC.
Date September 9, 2005 By: /s/ Jackson Y. Dott
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Chief Executive Officer
Date September 9, 2005 /s/ Marshall Chadwell
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Marshall Chadwell, Controller
Chief Financial Officer
(Principal Accounting and
Financial Officer)