<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 Nine Months Ended Commission File Number
September 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 November 13, 1995: 6,112,848
<PAGE>
PART I, ITEM I
THE ENCORE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of September 30, 1995 and December 31, 1994
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
(UNAUDITED)
------------- -------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash $ 3 $ 31
Accounts receivable 351 355
Inventory (Note 2) 237 305
Prepaid expenses 19 52
-------- ---------
Total current assets 610 743
-------- ---------
NON-CURRENT ASSETS
Real estate, 60 60
Fixed assets, net (Note 3) 11 19
Goodwill, net (Note 4) 514 532
-------- ---------
585 611
-------- ---------
Total assets $ 1,195 $ 1,354
-------- ---------
-------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 340 $ 274
Accrued liabilities (Note 7) 268 279
Lines of credit (Note 6) 1,250 1,268
-------- ---------
Total current liabilities 1,858 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 (27,648) (27,452)
Pension Liability Adjustment (103) (103)
-------- ---------
Total stockholders' deficit (663) (467)
-------- ---------
Total liabilities and stockholders'
deficit $ 1,195 $ 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 September 30, 1995 & 1994
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1995 1994 1995 1994
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 506 $ 781 $ 1,335 $ 2,071
LESS COST OF SALES 323 508 827 1,311
--------- --------- --------- ---------
GROSS PROFIT 183 273 508 760
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 186 223 578 677
--------- --------- --------- ---------
Operating income (loss) (3) 50 (70) 83
--------- --------- --------- ---------
NON-OPERATING REVENUES & EXPENSES
Other income - - - 1
Other expense (6) (5) (15) (14)
Interest expense (41) (34) (111) (89)
--------- --------- --------- ---------
Total non-operating revenues
& expenses (47) (39) (126) (102)
--------- --------- --------- ---------
NET INCOME (LOSS) $ (50) $ 11 $ (196) $ (19)
--------- --------- --------- ---------
--------- --------- --------- ---------
PER SHARE
Net income (loss) per share $ (.01) $ - $ (.03) $ -
--------- --------- --------- ---------
--------- --------- --------- ---------
Average common shares outstanding 6,112,848 6,112,848 6,112,848 6,112,848
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
3
The accompanyng notes are an integral part of
these consolidated financial statements.
<PAGE>
THE ENCORE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the nine months ended September 30, 1995 & 1994
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1995 1994
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (196) $ (19)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation 10 19
Amortization of goodwill 18 19
Loss on disposal of assets - -
Accounts receivable 4 -
Inventory 68 (2)
Prepaid expenses and other 33 1
Accounts payable 66 (28)
Accrued liabilities (11) 33
------- -------
Net cash provided by operating activities (8) 23
------- -------
CASH FLOWS RELATED TO INVESTING ACTIVITIES
Collections on notes and mortgage receivable - -
Proceeds from sale of fixed assets - 2
Purchase of fixed assets (2) -
------- -------
Net cash provided by (used in)
investing activities (2) 2
------- -------
CASH FLOWS RELATED TO FINANCING ACTIVITIES
Net borrowings (payments) related
to line of credit - -
Principal payments on notes payable (18) (23)
------- -------
Net cash used in financing activities (18) (23)
------- -------
NET INCREASE (DECREASE) IN CASH (28) 2
CASH, beginning of period 31 30
------- -------
CASH, end of quarter $ 3 $ 32
------- -------
------- -------
INTEREST PAID $ 111 $ 89
------- -------
------- -------
</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 September 30,
1995 and December 31, 1994, and the statements of operations and the statements
of cash flows for the periods ended September 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 September 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 $172 and $156 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 September 30, 1995 was $136.
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% (10.75% at September 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 SEPTEMBER 30, 1995 COMPARED TO PERIOD ENDED SEPTEMBER 30, 1994
Operating results for the quarter ended September 30, 1995 include the
operations of the Company and its wholly-owned subsidiary, VDO-Pak, Inc.
("VDO"). During the quarter VDO had sales of $506 and a net income of $21
versus last year's quarter with sales of $781 and net income of $73.
Interest expense for the quarter ended September 30, 1995, was $41, compared to
$34 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 income for the quarter ended September 30, 1995, was $50 loss compared
to $11 income for the same quarter last year. The increased loss is a result of
lower sales volume at VDO.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1995 the Company had a cash balance of $3, an decrease of
$28 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.
Working capital was in a deficit position of $1,248 compared to deficit $1,078
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 FROM 8-K
(a) There were no exhibits during this time frame.
(b) Reports on From 8-K
There were no reports filed on Form 8-K during the Registrant's
first quarter ended September 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: November 13, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 351
<ALLOWANCES> 0
<INVENTORY> 237
<CURRENT-ASSETS> 610
<PP&E> 71
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,195
<CURRENT-LIABILITIES> 1,858
<BONDS> 0
<COMMON> 6,113
0
0
<OTHER-SE> (6,776)
<TOTAL-LIABILITY-AND-EQUITY> (663)
<SALES> 506
<TOTAL-REVENUES> 506
<CGS> 323
<TOTAL-COSTS> 186
<OTHER-EXPENSES> (47)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (41)
<INCOME-PRETAX> (50)
<INCOME-TAX> 0
<INCOME-CONTINUING> (50)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
