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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT 1 TO
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
December 31, 1994 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
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which Registered
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None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock
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 Exchange Act of
1934 during the preceding 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 30, 1995 is $366,771 (assuming only for purposes of this
computation that Directors and Officers may be affiliates). The aggregate
number of shares outstanding of the Registrant's common stock as of March 30,
1995 is 6,112,848.
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The total number of pages contained in this Form 10-K/A is 5.
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PART I
ITEM 1. BUSINESS
During 1990, the Company operated two subsidiaries, VDO-Pak and Vidcom, both of
whom were engaged in the production of batteries and related power accessories
primarily for the cellular telephone market. In June of 1991, management
determined that after losing $384 in 1990 and $460 through the first five months
of 1991 related to the operations of Vidcom, it was in the best interest of the
Company to discontinue the manufacturing operations of Vidcom. Management
considered the idea of a marketing office in Michigan, which is where Vidcom was
located, but this idea was dropped when it was determined there was not an
adequate customer base to support it. For 1990 and 1991, VDO-Pak had net income
of $86 and $193, respectively. Since 1991, the operations of the Company have
consisted solely of VDO-Pak.
Since 1991, VDO-Pak has continued to produce batteries and related power
accessories primarily for the cellular telephone market and has changed their
products to accommodate the changes that continue to occur in the types of
cellular phones and related accessories. During 1994, over 50% of VDO-Pak's
sales were batteries and chargers for the larger cellular bag phones and over
25% of their sales were power cords and supplies for the cellular bag phones.
VDO-Pak operates in a very competitive environment for these products and
markets their products primarily through outside sales people, who are paid on a
commission basis, and some advertising. VDO-Pak's sales are concentrated
primarily in the Eastern and Mid-Eastern United States with some occasional
sales to companies located in the Western United States.
Also during 1994, over 67% of VDO Pak's sales were to eight customers. Although
VDO-Pak does repeat business with many of its customers, the volume to any one
customer can fluctuate significantly from one year to the next. Thus, the
Company is constantly searching for new customers to replace business that does
not recur. A significant constraint that VDO-Pak has continued to face, besides
the competitive environment, is inadequate cash flow. Because of the lack of
excess cash flow, VDO-Pak is not able to stock much inventory. Thus, for large
sales orders, VDO-Pak generally purchases materials and produces finished
product subsequent to receiving the orders.
For the year ended December 31, 1994, the Company had sales to the following
customers that individually exceeded 10% of the Company's total sales: North
Pointe Development, Cellular One and Technophone Corporation.
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PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In 1994, the Company reported consolidated net income of $55 compared to
consolidated net loss of $193 in 1993 and $134 consolidated net income in 1992,
respectively. During 1994, the Company operated only one subsidiary, VDO-Pak.
VDO-Pak has operated profitably prior to and since its acquisition by the
Company in 1989. For the year ended December 31, 1994, VDO-Pak earned a pre-tax
profit of $309.
Although 1994 was a year of improved performance, the Company still has a
significant working capital deficit and is out of compliance with its bank
covenants. Thus, these issues raise substantial doubt about the Company's
ability to continue as a going concern and the financial statements have been
prepared assuming the Company will continue to operate as a going concern. The
financial statements do not include any adjustments to reflect the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the possible inability of the Company and its
subsidiaries to continue as going concerns. Even with the doubt about the
Company's ability to continue to operate as a going concern, it has, in fact,
continued to make a number of small, but useful, imparovements that have
supported its continued existence.
In 1995, the Company will continue to face the challenge of generating
enough cash flows from VDO-Pak to cover its operating and overhead expenses.
Management is also pursuing other financing alternatives to specifically address
the financial structure of the Company.
RESULTS OF OPERATIONS
The gross profit percentage for 1994 was 37% compared to 31% and 33% in 1993 and
1992 respectively. The primary reason for the decline in gross profit in 1993
was a $90 write-down of certain inventories to their net realizable value. The
primary reason for the increase in gross profit in 1994 was the Company
increased its sales of power cords to one of its customers by about $80 and
generated approximately $252 in sales of a power cord product used with cellular
phones; power cord products have gross margins ranging from 48 to 52%. The
Company's sales declined sharply from $3,590 to $2,919 in 1992 and 1993,
respectively. The primary reasons for this were: 1) false publicity that the
use of cellular phones caused health problems and 2) the increase in working
capital deficit made it more difficult to purchase necessary inventory to
produce orders. The Company's sales increased from $2,919 to 3,113 in 1993 and
1994, respectively, primarily because of the reason mentioned above under
"Overview" that the Company aggressively marketed new and existing products with
some of its largest customers. The Company's selling and administrative
expenses declined from $1,144 to $959 in 1992 and 1993, respectively. This was
primarily due to the reduction of labor and other expenses at VDO-Pak
commensurate with the decline in sales.
During the year ended December 31, 1994, the Company reported consolidated net
income of $55 compared to a consolidated loss of $193 and consolidated income of
$134 in 1993 and 1992, respectively. The reason the Company reported income in
1992 was because they recorded a restructuring gain of $217 from the dissolution
of one of its subsidiaries, Vidcom. The primary reason for the loss in 1993 was
the decline in sales and gross profit percentage mentioned above. The primary
reason the Company reported income for 1994 was the increase in sales and gross
profit percentage from 1993 as mentioned above.
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LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have a working capital deficit which is $1,078 at
December 31, 1994. The deficit is directly attributable to the Company's
outstanding line of credit with the Bank of California. 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. Although the Company does not have a formal long-term
agreement with the bank, the Company has continued to make monthly principal
payments of $2.5 plus interest at prime plus 2.5% (10.5% at December 31, 1994)
on the outstanding balance. The interest payments average approximately $11 per
month. Under the terms of the agreement with the bank, the line of credit is
callable at any time, and the creditor may, at its option, institute legal
proceedings for repayment. Management intends to continue to pursue other
financing alternatives, as well as pursue potential purchases of profitable
businesses to provide working capital. The continued profitability of VDO-Pak
and the continuance of Bank of California to not call the line of credit are
essential to the Company's continued existence.
During 1994, the Company relied exclusively on the cash flows generated by
VDO-Pak to fund its day-to-day operations. In 1995, management expects to
maintain the sales volume and profit margins achieved by VDO-Pak in 1994, thus
providing additional cash flows for the Company.
The renewal of the line of credit and the continued success and operations
of VDO-Pak are essential to the continuation of the Company as a going concern.
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SIGNATURES
Pursuant to the requirements of 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.
THE ENCORE GROUP, INC.
Date: 1/31/96 /s/ Bruce L. Engel
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Bruce L. Engel
President, Principal
Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the followed persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Date: 1/31/96 /s/ Kenneth L. Wright
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Kenneth L. Wright
Executive Vice President and
Chief Financial Officer
Date: 1/31/96 /s/ Bruce L. Engel
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Bruce L. Engel
Director
Date: 1/31/96 /s/ Fred J. Kupel
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Fred J. Kupel
Director
Date: 1/31/96 /s/ Teri E. Engel
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Teri E. Engel
Secretary and Director
