<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Six Months Ended Commission File Number
June 30, 1995 0-4563
THE ENCORE GROUP, INC.
P.O. Box 69536
Portland, Oregon 97201
IRS Employer Identification Number: 93-0580867
Incorporated in the State of Oregon
Telephone Number: (503) 221-4255
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such 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
------ ---
Number of shares of common stock outstanding as of August 11, 1995: 6,112,848
<PAGE>
PART I, ITEM I
THE ENCORE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of June 30, 1995 and December 31, 1994
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
(Unaudited)
----------- -------
ASSETS
------
CURRENT ASSETS
<S> <C> <C>
Cash $ 11 $ 31
Accounts receivable 328 355
Inventory (Note 2) 271 305
Prepaid expenses 19 52
--------- -------
Total current assets 629 743
--------- -------
NON-CURRENT ASSETS
Real estate, 60 60
Fixed assets, net (Note 3) 14 19
Goodwill, net (Note 4) 520 532
--------- -------
594 611
--------- -------
Total assets $ 1,223 $ 1,354
--------- -------
--------- -------
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable $ 276 $ 274
Accrued liabilities (Note 7) 307 279
Lines of credit (Note 6) 1,253 1,268
--------- -------
Total current liabilities 1,836 1,821
--------- -------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock without par value, stated value $1 per share,
10,000,000 shares authorized; 6,156,110 shares issued,
6,112,848 outstanding 6,113 6,113
Additional paid-in capital 20,975 20,975
Retained deficit (27,598) (27,452)
Pension Liability Adjustment (103) (103)
--------- -------
Total stockholders' deficit (613) (467)
--------- -------
Total liabilities and stockholders' deficit $ 1,223 $ 1,354
--------- -------
--------- -------
</TABLE>
2
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
THE ENCORE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the periods ended June 30, 1995 & 1994
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
June 30, June 30,
-------- -------
1995 1994 1995 1994
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 449 $ 629 $ 829 $ 1,290
LESS COST OF SALES 284 401 504 803
--------- --------- --------- ---------
GROSS PROFIT 165 228 325 487
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 191 214 392 454
--------- --------- --------- ---------
Operating income (loss) (26) 14 (67) 33
--------- --------- --------- ---------
NON-OPERATING REVENUES & EXPENSES
Other income - - - 1
Other expense (4) (5) (9) (9)
Interest expense (33) (29) (70) (55)
--------- --------- --------- ---------
Total non-operating revenues & expenses (37) (34) (79) (63)
--------- --------- --------- ---------
NET INCOME (LOSS) $ ( 63) $ (20) $ (146) $ (30)
--------- --------- --------- ---------
--------- --------- --------- ---------
PER SHARE
Net income (loss) per share $ (.01) $ - $ (.02) $ -
--------- --------- --------- ---------
--------- --------- --------- ---------
Average common shares outstanding 6,112,848 6,112,848 6,112,848 6,112,848
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
3
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
THE ENCORE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended June 30, 1995 & 1994
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1995 1994
---- ----
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (146) $ (30)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation 7 14
Amortization of goodwill 12 13
Loss on disposal of assets - -
Accounts receivable 27 163
Inventory 34 (54)
Prepaid expenses and other 33 17
Accounts payable 2 (122)
Accrued liabilities 28 36
--------- --------
Net cash provided by operating activities (3) 37
--------- --------
CASH FLOWS RELATED TO INVESTING ACTIVITIES
Collections on notes and mortgage receivable - -
Proceeds from sale of fixed assets - 1
Purchase of fixed assets (2) -
--------- --------
Net cash provided by (used in) investing activities (2) 1
--------- --------
CASH FLOWS RELATED TO FINANCING ACTIVITIES
Net borrowings (payments) related to line of credit - -
Principal payments on notes payable (15) (15)
--------- --------
Net cash used in financing activities (15) (15)
--------- --------
NET INCREASE (DECREASE) IN CASH (20) 23
CASH, beginning of period 31 30
--------- --------
CASH, end of quarter $ 11 $ 53
--------- --------
--------- --------
INTEREST PAID $ 70 $ 29
--------- --------
--------- --------
</TABLE>
4
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
THE ENCORE GROUP, INC.
AND SUBSIDIARIES
Notes to consolidated financial statements
NOTE 1. GENERAL - The accompanying consolidated balance sheets at June 30, 1995
and December 31, 1994, and the statements of operations and the statements of
cash flows for the periods ended June 30, 1995 and 1994, have been prepared in
conformity with generally accepted accounting principles. The management of The
Encore Group, Inc. (the "Company") believes that all adjustments necessary for a
fair statement of the results of such interim periods have been included. It is
the Company's opinion that, when the interim statements are read in conjunction
with the audited financial statements set forth in the annual Form 10-K for the
year ended December 31, 1994, the disclosures are adequate to make the
information presented not misleading.
NOTE 2. INVENTORY - Inventory is stated at the lower of cost (First-In, First-
Out Method) or market. Inventory at June 30, 1995 consists of components and
products purchased for manufacture and resale through the Company's subsidiary.
NOTE 3. FIXED ASSETS - Fixed assets are stated at cost, net accumulated
depreciation of $158 and $151 in 1995 and 1994, respectively. Depreciation is
computed using the straight-line method over estimated useful lives of the
assets (three to eight years).
NOTE 4. GOODWILL - Goodwill is being amortized over its estimated useful life
of 20 years. Accumulated amortization at June 30, 1995 was $130.
NOTE 5. PENSION - Beginning in 1990, SFAS 87 required recognition in the
balance sheet of a minimum pension liability for underfunded plans. The minimum
liability that must be recognized is equal to the excess of the accumulated
benefit obligation over plan assets. A corresponding amount is recognized as
either an intangible asset or a reduction of equity.
NOTE 6. LINES OF CREDIT - The Company has no further availability to borrow on
their existing line of credit since the Company is not in compliance with the
credit agreement that required payment on January 31, 1992. Interest rate is
calculated at prime plus 2% (11.00% at June 30, 1995). The line is secured by
accounts receivable and inventory of VDO-Pak and the principal shareholders'
common stock holdings in the Company.
NOTE 7. ACCRUED LIABILITIES - Included in accrued liabilities is a $12,000 note
payable to the prior owners of Vidcom. The Company has accrued interest on this
note at on an annual basis.
5
<PAGE>
PART I, ITEM 2
THE ENCORE GROUP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
PERIOD ENDED JUNE 30, 1995 COMPARED TO PERIOD ENDED JUNE 30, 1994
Operating results for the quarter ended June 30, 1995 include the operations of
the Company and its wholly-owned subsidiary, VDO-Pak, Inc. ("VDO"). During the
quarter VDO had sales of $449 and a net income of $15 versus last year's quarter
with sales of $629 and net loss of $36.
Interest expense for the quarter ended June 30, 1995, was $33, compared to $29
for the prior year's quarter, consisting mostly of interest on the line of
credit. Other interest expense is interest paid and accrued on notes payable.
The net loss for the quarter ended June 30, 1995, was $63 compared to $20 loss
for the same quarter last year. The increased loss is a result of lower sales
volume at VDO due to market conditions.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1995 the Company had a cash balance of $11, an decrease of $20
from the end of fiscal year 1994. The primary uses of cash during the period
were funding the operations and working capital requirements of the Company and
its subsidiary, and payments made on notes payable obtained in the acquisition
of VDO.
Accounts receivable decreased during the quarter to provide working capital
needed to fund the operations. Working capital was in a deficit position of
$1,207 compared to deficit $1,154 at the end of 1994.
The Company intends to continue operating VDO and is currently relying on this
facility to provide cash flow for its day to day operations since they have no
further availability to borrow on the line of credit. Currently, the Company is
not in compliance with its existing credit agreement, which required repayment
on January 31, 1992. VDO has generally provided enough cash flow to allow the
Company to continue to operate.
Management expects to maintain the sales and profit margins of VDO, thus
providing cash flow for the Company.
The renewal of the line of credit, and the continued success and operations of
VDO, are essential to the continuation of the Company as a going concern.
6
<PAGE>
PART II, OTHER INFORMATION
THE ENCORE GROUP, INC.
ITEM 1. LEGAL PROCEEDINGS
The Company was not involved in any litigation.
ITEM 5. OTHER INFORMATION
(a) Subsequent Events
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) There were no exhibits during this time frame.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the Registrant's
first quarter ended June 30, 1995.
7
<PAGE>
SIGNATURES
THE ENCORE GROUP, INC.
AND SUBSIDIARIES
Pursuant to the requirements 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.
THE ENCORE GROUP, INC.
Date: August 11, 1995 /s/ Kenneth L. Wright
------------------------
Kenneth L. Wright
Executive Vice President and
Principal Financial Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 328
<ALLOWANCES> 0
<INVENTORY> 271<F1>
<CURRENT-ASSETS> 629
<PP&E> 74<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,223
<CURRENT-LIABILITIES> 1,836
<BONDS> 0
<COMMON> 6,113
0
0
<OTHER-SE> (6,726)
<TOTAL-LIABILITY-AND-EQUITY> 613
<SALES> 449
<TOTAL-REVENUES> 449
<CGS> 284
<TOTAL-COSTS> 191
<OTHER-EXPENSES> (37)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (33)
<INCOME-PRETAX> (63)
<INCOME-TAX> 0
<INCOME-CONTINUING> (63)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (63)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
<FN>
<F1>Note 2
<F2>Note 3
</FN>
</TABLE>
