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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT 1 TO
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
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Number of shares of common stock outstanding as of November 13, 1995: 6,112,848
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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.
NOTE 8. RELATED PARTY TRANSACTION - During 1995 the company loaned to its
President and chief Executive Officer, Bruce L. Engel, a total of $87.5. The
present balance outstanding is $74.5.
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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. For the
nine months ended September 30, 1995, VDO had net sales of $1,335 and net income
of $27 compared to sales of $2,071 and net income of $152 for the same time
period last year. In prior years, the majority of VDO's sales were batteries,
chargers, and power cords for the larger cellular bag phones. Currently, VDO is
in somewhat of a transition in that the demand for the products related to the
bag phones has declined and VDO is increasing distribution of products for the
smaller hand-held phones that are in greater demand. As a result of this
change, sales to a few of VDO's largest customers from last year have
significantly declined. For example, sales to Technophone for the year ended
December 31, 1994 were $409 and sales to this same customer for the nine months
ended September 30, 1995 were $57. Sales to North Pointe Development for the
year ended December 31, 1994 were $523 and sales to this same customer for the
nine months ended September 30, 1995 were $287. Sales to Cellular One/S.W.
Florida for the year ended December 31, 1994 were $456 and sales to this same
customer for the nine months ended September 30, 1995 were $174. Overall, the
gross margin of 38% for the nine months ended September 30, 1995 was relatively
consistent with the margin of 37% for the same period last year. Thus, the
decline in income for VDO is primarily attributable to the significant decline
in sales.
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, which had
declined from a cash balance of $31 at December 31, 1994. The primary
consumption of cash during this time was principal payments made on the line of
credit and the operations of VDO consumed some cash.
There is a working capital deficit of $1,248 at September 30, 1995 compared to a
deficit of $1,078 at December 31, 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. In prior years, VDO has provided enough cash flow to allow
the Company to continue to operate.
In the near term, the Company will have to increase the sales of VDO's products
back to historical levels, while maintaining the historical profit margins if
the Company is going to continue to operate. Also, the bank will have to
continue to not exercise its right to demand repayment of the line of credit in
order for the Company to continue to operate.
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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: January 31, 1996
/s/ Kenneth L. Wright
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Kenneth L. Wright
Executive Vice President and
Principal Financial Officer
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