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THE ENCORE GROUP, INC.
AMENDMENTS TO FORM 10-Q
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
COMMISSION FILE NUMBER 0-4563
RESPONSES TO COMMENTS FROM THE SEC, DECEMBER 19, 1995
REVISED NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. RELATED PARTY TRANSACTION - During 1995 the Company loaned to its
President and Chief Executive Officer Bruce L. Engel, a total of $87,500. The
present balance outstanding is $74,500.
PART I, ITEM 2
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
AT THE END OF THE FIRST PARAGRAPH ADD THE FOLLOWING: 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.
LIQUIDITY AND CAPITAL RESOURCES
THE FOLLOWING REPLACES THIS SECTION IN ITS ENTIRETY
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.
