UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
--------------- --------------
Commission file Number: 0-4563
THE ENCORE GROUP, INC.
PO Box 69536
Portland, Oregon 97201
I.R.S. Employer Identification Number: 93-0580867
Incorporated in the State of Oregon
Telephone number: (503) 221-4255
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, without par value
(Title of class)
Indicate by check whether the Registrant: (1) 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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 of this Form 10-K. [ ]
State issuer's revenues for its most recent fiscal year: $0
State the aggregate market value of the voting stock held by
nonaffiliates computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date within 60
days prior to the date of filing: nil aggregate market value as of
December 31, 1996, based on the fact that no stock was traded.
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 17,011 shares of
Common Stock, without par value, on June 23, 1998
----------
The total number of pages contained in this Form 10-K is 29.
The Exhibit Index is located at sequentially numbered page 15.
<PAGE>
INDEX TO FORM 10-K
For the year ended December 31, 1996
PART I Page
----
Item 1. Business 3
Item 2. Properties 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 5
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 7
PART III
Item 10. Directors and Executive Officers of the Registrant 8
Item 11. Executive Compensation 9
Item 12. Security Ownership of Certain Beneficial Owners and
Management 10
Item 13. Certain Relationships and Related Transactions 10
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 11
Index to Exhibits 13
Financial Statements 14
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Company Overview
- ----------------
Registrant's only operating subsidiary, VDO-Pak, Inc., Port Orange,
Florida, ceased operations in August 1996. Registrant ceased operations in
November 1996. Subsequently, on February 28, 1997, Encore vacated its leased
premises at 4800 SW Macadam, Suite 100, Portland, Oregon. Encore currently
utilizes a post office box and a telephone voice messaging service for its
communications. Management currently is attempting to complete the resolution of
various creditor disputes in order to create a stable going-concern basis for
the Company. In March of 1998 the Company acquired an operating activity,
Parsons Industries, Inc. ("Parsons") of Ashland, Oregon. Parsons is a secondary
wood products manufacturer doing business under the trade style Parsons Pine.
Parsons is currently operating at a modest loss.
Encore is the successor corporation of American Guaranty Financial
corporation (formerly American Guaranty Life Insurance Company), which
originally experienced financial difficulties beginning in the late 1970's due
to extremely unprofitable investments in ill-chosen development projects.
Although the Registrant was once a company of sizable proportions, the
unprofitable investments were disastrous. In 1989 the net worth of the company
was essentially depleted. In addition to the losses, the company was also
involved in substantial litigation regarding failed operations.
In 1989 approximately one-third of Registrant's common stock was
acquired by Bruce L. Engel. New management was installed and efforts were set in
motion to resolve the litigation and rebuild the company. Registrant acquired
VDO-Pak, Inc., Port Orange, Florida, a supplier of power packs, rechargeable
batteries and accessories for cellular telephones. A bank loan of approximately
$1,200,000 was arranged, secured by VDO-Pak's assets, accounts receivable and
inventory. The loan, from the Bank of California, now known as the Union Bank of
California, was guaranteed by registrant's controlling shareholder.
Also in 1989, Registrant acquired Vidcom Manufacturing, Inc., Livonia,
Michigan, a fabricator of nickel-cadmium batteries for cellular phones. In 1991
Vidcom Manufacturing, Inc. was closed due to the lack of a customer base.
Registrant changed its name to The Encore Group, Inc. in 1990.
From 1992 through 1995 Registrant conducted a series of activities
devoted to clearing up unresolved legal matters and attempting to strengthen the
company. In 1995, Encore approached the bank and offered to satisfy the loan on
a reduced and modified basis. Throughout the calendar year 1996 the bank gave
continuing assurances that the settlement proposal would be accepted. Based upon
these statements, Encore continued operating VDO-Pak and prepared to attract new
capital by securing shareholder approval of a 1 for 500 reverse stock split. In
the second half of 1996 the bank reneged on its acceptance of the restructuring
proposal.
3
<PAGE>
On December 6, 1996, the bank reversed itself again and granted a
settlement. However, by this time both VDO-Pak, Inc. and Encore were shut down
and insolvent.
Efforts to Revive the Business.
- ------------------------------
Open claims with the Internal Revenue Service and the Pension Benefit
Guarantee Corporation have been resolved. Certain creditors of VDO-Pak, Inc,
have settled their claims against the Company. Discussions are continuing with
other creditors. Management is attempting at this time to secure sufficient
working capital to support the continuing activities of the Company.
The operation of Parsons is expected to provide some working capital at
such time that the subsidiary is profitable.
There is no assurance that adequate working capital will be available.
ITEM 2. DESCRIPTION OF PROPERTIES
The company has no facilities or premises.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently subject to any material litigation nor, to
the Company's knowledge, is any material litigation threatened against the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
4
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Price Range of Common Stock:
1997 1996
--------------- ---------------
High Low High Low
----- ----- ----- -----
First Quarter Not traded $0.05 $0.05
Second Quarter Not traded Not traded
Third Quarter Not traded Not traded
Fourth Quarter Not traded Not traded
No dividends have been paid since a 1983 stock dividend, and no cash or
other dividends are contemplated for the foreseeable future.
As of June 23, 1997, there were 211 record holders of the Registrant's
common stock holding 17,011 shares.
5
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 0 $ 749 $ 2,015 $ 3,113 $ 2,919 $ 3,590
======== ======== ======== ======== ======== ========
Net income (loss) (50) $ 693 $ (384) $ 55 $ (193) $ 134 (1)
======== ======== ======== ======== ======== ========
Net income (loss) per
common share: (1) $ (5.09) $ 70.57 $(39.10) $ 5.60 $(19.65) $ 13.65
======== ======== ======== ======== ======== ========
Common shares(pro forma) 9,820 9,820 9,820 9,820 9,820 9,802
======== ======== ======== ======== ======== ========
Cash 2 $ 10 $ 8 $ 31 $ 30 $ 36
Fixed assets, net 0 15 8 19 42 59
Other assets 0 9 1,036 1,304 1,391 1,630
-------- -------- -------- -------- -------- --------
Total assets 2 $ 34 $ 1,052 $ 1,354 $ 1,463 $ 1,725
======== ======== ======== ======== ======== ========
Current liabilities 322 $ 294 $ 1,709 $ 1,645 $ 1,849 $ 1,918
Pension liability 0 267 248 176 105 105
-------- -------- -------- -------- -------- --------
Total liabilities 322 $ 561 $ 1,957 $ 1,821 $ 1,954 $ 2,023
======== ======== ======== ======== ======== ========
Total
stockholders deficit (320) $ (527) $ (905) $ (467) $ (491) $ (298)
======== ======== ======== ======== ======== ========
Cash dividends per common
share $ - $ - $ - $ - $ - $ -
======== ======== ======== ======== ======== ========
</TABLE>
- --------
(1) In 1991, the Company ceased operations and liquidated the remaining assets
of Vidcom Manufacturing, Inc. (Vidcom), a wholly owned subsidiary located in
Livonia, Michigan. Vidcom's liquidation resulted in a restructuring charge of
$323 in the year ended December 31, 1991. During 1992, Vidcom was dissolved and
its remaining obligations were discharged, resulting in a restructuring gain of
$217 in the year ended December 31, 1992.
6
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company has been inoperative since November 1996. To date the
Company's major shareholder has attempted to revive the Company by settling
outstanding claims and seeking opportunities for working capital and viable
business activities. Outstanding claims by the Internal Revenue Service and the
Pension Benefit Guarantee Corporation have been settled and creditor settlements
are in process. In March 1998 Parsons Industries, Inc. was aquired for common
stock of the Registrant and is expected to contribute cash flow to the parent
organization.
In June 1998 the Company leased a small office location in Tigard,
Oregon.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item
are included on pages F-1 to F-16 of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
7
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant's Restated Articles of Incorporation and Bylaws provide
for a Board of Directors consisting of not less than three nor more than seven
directors, with the exact number within this range to be determined from time to
time only by the Board of Directors. The current number of directors is six. All
directors stand for election annually. Officers are elected to a term of one
year or less, serve at the pleasure of the Board of Directors, and are entitled
only to such compensation as is fixed by the Board.
The Directors and Executive Officers of the Registrant as of December
31, 1995, are as follows:
Director Officer Positions and/or
Name Since Since Offices Held Age
Bruce L. Engel 1988 1991 Director; President and 58
Chief Executive
Teri E. Engel 1989 1989 Director; Corporate Secretary 49
Robert G. Fligg 1988 - Director 49
Fred J. Kupel 1995 1998 Director; Vice President of 69
Finance and Chief Financial
Officer, Assistant Secretary
Robert J. Gardiner 1998 - Director 58
Michael J. Rasmussen 1998 - Director 37
The following family relationships exist among the directors or
executive officers: Bruce L. Engel and Teri E. Engel are husband and wife; Mr.
Fligg's spouse is a niece of Mr. Engel.
Mr. Engel was elected President and Chief Executive Officer on March
19, 1991. Mr. Engel's principal employment was as President and Chief Executive
Officer of WTD Industries, Inc., Portland, Oregon, from its inception in 1983
until his retirement in 1998.
Ms. Engel has been a director and Secretary of the Company since 1989.
Mr. Fligg was employed by Dee Forest Products, Inc. from March 1991 to
July 1997 as Chief Financial Officer. Subsequently, Mr. Fligg has served
Advanced Navigation & Positioning Corporation as Chief Financial Officer. Both
firms are in Hood River, Oregon. He was employed as an officer of Registrant
from 1988 to 1991.
Mr. Gardiner is the 1958 founder and subsequent President of MRK
Investments, which specializes in residential and commercial real estate and
property management. He was employed by WTD Industries, Inc. from 1985 to 1998
as Corporate Pilot. Mr. Gardiner is a licensed Commercial Pilot holding an
Airline Transport Pilot's rating in fixed wing and rotorcraft.
Mr. Kupel has been an independent management consultant for over ten
years. Prior to 1989 he served as Chief Financial Officer and Corporate
Development Officer for various public and private corporations. He has served
the Company as a consultant since 1993.
8
<PAGE>
Mr. Rasmussen is the President of Parsons Industries, Inc., a secondary
wood products company located in Ashland, Oregon. Parsons Industries, Inc. is a
wholy-owned subsidiary of Registrant. Prior to his position with Parsons
Industries, Inc. Mr. Rasmussen served for one year as a Business Development
Executive with GE Capital specializing in small business. For the 14 prior years
Mr. Rasmussen worked in lending and management positions with Bank of America
and U.S.National Bank of Oregon.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
- --------------------------
The following table shows the cash and non-cash compensation paid
during 1997 to the company's Chief Executive Officer. Directors received no
compensation for their services in 1997.
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
Annual Compensation(1) --------------------
------------------------------ Number of Securities
Name and Principal Position Year Salary($) Bonus($) Underlying Options
------------------------------- ------ ---------- ---------- --------------------
<S> <C> <C> <C> <C>
Bruce L. Engel 1997 0 0 0
President and 1996 0 0 0
Chief Executive Officer 1995 0 0 0
</TABLE>
No executive officer received cash compensation in 1997 in excess of $100,00.
Option Grants in Last Fiscal Year
- ---------------------------------
a). No options were granted in 1997.
Options Percent of Exercise Expiration
Name Granted Total Options Price Date
----- ----------- ------------- -------- ----------
b.) Option Plan Grants in 1998 (remainder of grants under old Plan):
Bruce L. Engel 1,000 8.7 $10.00 4/20/2008
Teri E. Engel 80 .7 $10.00 4/20/2008
Robert G. Fligg 80 .7 $10.00 4/20/2008
Robert J.Gardiner 80 .7 $10.00 4/20/2008
Fred J. Kupel 80 .7 $10.00 4/20/2008
Michael J. Rasmussen 80 .7 $10.00 4/20/2008
c.) Options granted in connection with the March 31, 1988, acquisition of
Parsons Industries, Inc.:
Bruce L. Engel &
Teri E. Engel 500 4.4 $10.00 4/20/2008
Robert J.Gardiner &
Brenda J.Gardiner 4,750 41.7 $10.00 4/20/2008
Michael J. Rasmussen 4,750 41.7 $10.00 4/20/2008
----------- ------------- -------- ----------
11,400 100.0 $10.00
9
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows beneficial ownership as of June 23, 1998 of
the Company's Common Stock by (i) each director, (ii) each beneficial owner of
more than 5 percent of the Common Stock, (iii) the Named Executive Officers and
(iv) all directors and officers as a group. Except as otherwise specifically
noted, each person noted below has sole investment and voting power with respect
to shares indicated.
Amount and Nature
Beneficial Owner of Beneficial Ownership(1) Percent of Class
- -------------------- -------------------------- ----------------
Bruce L.Engel 3,367 (2) 19.8%
Teri E.Engel 3,017 (2) 19.8
Robert G. Fligg 500 2.9
Robert J. Gardiner 762 4.5
Fred J. Kupel 640 3.8
Michael J. Rasmussen 750 4.4
All Directors and
officers as a group
(6 persons) 5,669 35.4
Union Bank of California 1,005 (3) 5.9%
(1) Beneficial Ownership includes sole voting and investment power as to the
shares.
(2) Includes shares held individually by Mr.Engel and shares held jointly with
spouse.
(3) As a consequence of the December 6, 1996, Settlement Agreement between the
Company, Bruce and Teri Engel, and the Union Bank of California, said Bank
received 1,005 shares of common stock previously held by the Engels. The said
Bank is using Cede and Co. as a nominee to hold these shares, to the best of
the company's knowledge. The Company is unaware of any reports of ownership
having been filed by the Union Bank of California.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Fred J. Kupel served the Company as an outside consultant during 1997
and received compensation of $6,000 in the form of 600 shares of common stock.
This amount is less than the minimum required for disclosure purposes. The
shares were not issued until 1998.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires that the Company's officers, directors and persons who own more than 10
percent of the Common Stock file with the SEC initial reports of beneficial
ownership on Form 3 and reports of changes in beneficial ownership of Common
Stock and other equity securities of the Company on Forms 4 and 5. Officers,
directors, and greater than 10 percent shareholders of the Company are required
by SEC regulations to furnish to the Company copies of all Section 16(a) reports
that they file. To the Company's knowledge, based solely on reviews of such
reports furnished to the Company and written representations that no other
reports are required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10 percent beneficial owners were complied
with during the fiscal year ended December 31, 1997.
10
<PAGE>
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following financial statements of the Registrant are contained in
this report:
INDEPENDENT AUDITOR'S REPORT 14
FINANCIAL STATEMENTS
Balance sheets 15
Statements of operations 16
Statements of retained deficit 17
Statements of cash flow 18
Notes to financial statements 19
(a)(2) Exhibits:
Exhibit Description
27 Financial Data Schedule(1)
(b) Reports on Form 8-K. A current report on Form 8-K, describing the
acquisition of Parsons Industries, Inc. and a Board Resolution
approving a quasi-reorganization of the Company was filed April 20,
1998.
- ----------
(1) This schedule has been submitted in the electronic form
prescribed by EDGAR.
11
<PAGE>
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: 7/17/98 /s/ Bruce L. Engel
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: 7/17/98 Kenneth L. Wright
Executive Vice President and Chief Financial Officer
Mr. Wright resigned as an Officer and Director as
of December 15, 1997
Date: 7/17/98 /s/ Bruce L. Engel
--------------------
Bruce L. Engel
Director
Date: 7/17/98 /s/ Fred J. Kupel
--------------------
Fred J. Kupel
Director
Date: 7/17/98 /s/ Robert G. Fligg
--------------------
Robert G. Fligg
Director
Date: 7/17/98 /s/ Teri E. Engel
--------------------
Teri E. Engel
Secretary and Director
12
<PAGE>
THE ENCORE GROUP, INC.
INDEX TO EXHIBITS
27 Financial Data Schedule
This schedule has been submitted in the electronic form prescribed by EDGAR.
13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
The Encore Group, Inc.
We have audited the accompanying balance sheet of The Encore Group, Inc. as of
December 31, 1997. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
Because we were not engaged to audit the statement of income and retained
earnings, and cash flows, we did not extend our auditing procedures to enable us
to express an opinion on results of operations and cash flows for the year ended
December 31, 1997. Accordingly, we express no opinion on them.
In our opinion, the combined balance sheet presents fairly, in all material
respects, the financial position of The Encore Group, Inc. as of December 31,
1997.
The accompanying balance sheet has been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1 to the financial statements,
under existing circumstances, there is substantial doubt about the ability of
The Encore Group, Inc. to continue as a going concern at December 31, 1997.
Management's plans in regard to that matter are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/Moss Adams LLP
-----------------
MOSS ADAMS
Beaverton, Oregon
February 19, 1998
14
<PAGE>
THE ENCORE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
DECEMBER 31,
1997 1996
----------- ----------
(Audited) (Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 2 $ 10
Accounts receivable, net 0 (1)
Inventory 0 0
Prepaid expenses 0 10
----------- ----------
Total current assets 2 19
----------- ----------
NON-CURRENT ASSETS
Land held for sale 0 15
Fixed assets, net 0 0
Goodwill, net 0 0
----------- ----------
0 15
----------- ----------
Total assets $ 2 $ 34
=========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 269 $ 275
Accrued liabilities 41 19
Note payable 12 0
----------- ----------
Total current liabilities 322 294
PENSION LIABILITIES 0 267
----------- ----------
Total liabilities 322 561
----------- ----------
STOCKHOLDERS' DEFICIT
Common stock without par value,
50,000 authorized,
9,802 outstanding 6,113 6,113
Series B Preferred stock $100 par value
5,000 authorized, 1,000 outstanding 100
Additional paid-in capital 20,975 20,975
Retained deficit (27,508) (27,458)
Pension liability adjustment - (157)
----------- -----------
Total stockholders' deficit (320) (527)
----------- -----------
Total liabilities and
stockholders' deficit $ 2 $ 34
=========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
THE ENCORE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
YEAR ENDED DECEMBER 31,
1997 1996 1995
(Audited) (Unaudited) (Audited)
<S> <C> <C> <C>
SALES $ - $ 749 $ 2,015
LESS COST OF SALES - 756 1,283
---------- ---------- ----------
GROSS PROFIT - (7) 732
---------- ---------- ----------
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 65 339 808
---------- ---------- ----------
Operating income (loss) (65) (346) (76)
---------- ---------- ----------
NON-OPERATING REVENUES & EXPENSES
Gain on pension settlement 12
Other income 3 - -
Write-down of real estate investment - - (45)
Settlement of note payable and adjustments 1,049
Other expense - - (112)
Interest expense - (10) (151)
---------- ---------- ----------
Total non-operating revenues & expenses 15 1,039 (308)
---------- ---------- ----------
NET INCOME (LOSS) $ (50) $ 693 $ (384
========== ========== ==========
PER SHARE
Net income (loss) per share $ (5.09) $ 70.57 $ (39.10)
========== ========== ==========
Average common shares outstanding 9,820 9,820 9,820 (1)
========== ========== ==========
</TABLE>
(1) Pro forma after 1:500 reverse stock split.
The accompanying notes are an integral part of these consolidated
financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
THE ENCORE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
YEAR ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands, except share amount)
COMMON STOCK PREFERRED STOCK ADDITIONAL PENSION
OUTSTANDING OUTSTANDING PAID-IN RETAINED LIABILITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 6,112,848 $ 6,113 - - 20,975 (27,507) (72) (491)
Net income for 1994 - - - - - 55 - 55
Pension liability adjustment - - - - - - (31) (31)
----------- --------- ---------- --------- ----------- ----------- ---------- ---------
Balance, December 31, 1994 6,112,848 $ 6,113 - - 20,975 (27,452) (103) (467)
Net loss for 1995 - - - - - (384) - (384)
Pension liability adjustment - - - - - - (54) (54)
----------- --------- ---------- --------- ----------- ----------- ---------- ---------
Balance, December 31, 1995 6,112,848 $ 6,113 - - $ 20,975 $ (27,836) $ (157) $ (905)
Net gain for 1996 - - - - - 378 - 378
----------- --------- ---------- --------- ----------- ----------- ---------- ---------
Balance, December 31, 1996 (1) 9,820 $ 6,113 - - $ 20,975 $ (27,458) $ (157) $ (527)
Net loss for 1997 - - 100,100 $ 100 - (50) 157 207
----------- --------- ---------- --------- ----------- ----------- ---------- ---------
Balance, December 31, 1997 (1) 9,820 $ 6,113 100,000 $ 100 $ 20,975 $ (27,508) $ - $ (320)
=========== ========= ========== ========= ========== =========== ========== =========
</TABLE>
- ----------
(1) Number of shares after reverse stock split.
The accompanying notes are an integral part of these consolidated
financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
THE ENCORE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED DECEMBER 31,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS RELATED TO OPERATING ACTIVITIES
Net income (loss) $ (50) $ 693 $(384)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain on settlement of pension liability (11)
Gain on disposal of land (3)
Depreciation 6 13
Allowance for stockholder receivable - 75
Amortization of goodwill - 25
Pension liability adjustment - (54)
Loss (gain) on disposal or writedown of assets - 45
Accounts receivable (1) 292 64
Inventory 200 105
Prepaid expenses and other 4 13 29
Accounts payable (6) (96) 97
Pension liability 19 72
Accrued liabilities 29 (81) (3)
------ ------ ------
Net cash provided by operating activities (38) 1,046 84
------ ------ ------
CASH FLOWS RELATED TO INVESTING ACTIVITIES
Loan to stockholder - (75)
Proceeds from sale of fixed assets 18 (8) -
Purchases of fixed assets - (2)
Closure of facilities, net 202
------ ------ ------
Net cash provided by (used in) investing activities 18 194 (77)
------ ------ ------
CASH FLOWS RELATED TO FINANCING ACTIVITIES
Settlement of note payable (1,238)
Principal payments on notes payable - (30)
Proceeds from short-term notes payable 12
------ ------ ------
Net cash used in financing activities 12 (1,238) (30)
------ ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8) 2 (23)
CASH AND CASH EQUIVALENTS, beginning of year 10 8 31
CASH AND CASH EQUIVALENTS, end of year $ 2 $ 10 $ 8
====== ====== ======
INTEREST PAID $ - $ 10 $ 151
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
18
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and organization - The Company has not operated since August,
1996, at which time the Company ceased operations of its only wholly
owned subsidiary, VDO-Pak, Inc. Subsequent to the closure of VDO-Pak,
Inc., the Company has been involved in various creditor disputes, as
described below. As shown on the accompanying balance sheet the Company
has minimal assets and a net deficit in equity of $320,540. During the
year ended March 31, 1997 and subsequent to year-end, the Company's
management has developed a plan to improve the Company's financial
position. The plan includes efforts to resolve creditor issues
associated with the Company's pension plan and the creditors of
VDO-Pak. A discussion of the steps taken regarding the pension plan and
the VDO-Pak creditors is included in notes two and three, respectively.
Additionally, as described below in note three, the Company has
acquired Parsons Pine in March of 1998. Parsons Pine is a lumber
remanufacturing operation which is currently operating at a modest
loss.
The ability of the Company to continue as a going concern is dependent
upon the achievement of management's plan and an improvement in the
profitability of the Parsons Pine facility. No adjustments have been
made to the financial statements should the Company be unable to
continue as a going concern.
Cash and cash equivalents - The Company considers all highly liquid
investments with a maturity date of three months or less to be cash
equivalents. The Company maintains its cash and cash equivalents in
bank deposit accounts which, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts.
The Company believes it is not exposed to any significant credit risk
associated with its cash and cash equivalents.
Use of estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results may differ from these estimates.
19
<PAGE>
NOTE 2 - RETIREMENT PLAN
The Company has a noncontributory defined benefit retirement plan
covering certain former corporate employees. During 1990, the Company
froze the participation in the plan with the intention of eventually
terminating the plan. As of December 31, 1997, the Company was unable
to meet its obligations under the retirement plan. Additionally, the
Company was unable to pay excise taxes imposed by the Internal Revenue
Service (IRS) which were based on the accumulated funding deficiency of
the plan. As such, the Company sought relief from the Pension Benefit
Guaranty Corporation (PBGC) and the IRS. Subsequent to year end a
settlement was reached with the PBGC, by which the plan was terminated
and the Company was relieved of its liability. The settlement required
the company to issue to the PBGC one thousand shares of the Company's
Series B preferred stock, with a $100 par value, options to acquire one
thousand shares of the Company's common stock at $10 per share and
warrants to acquire one thousand of the Company's stock at $100 per
share.
The Company also reached a settlement with the IRS which required the
Company to pay ten percent of the excise taxes assessed for the plan
years ended December 31, 1993, 1994, 1995 and 1996. The final amount to
be paid was $40,613. The settlements with the PBGC and IRS have been
treated as final as of December 31, 1997, and the related impact on
shareholders' equity, accrued liabilities and net income have been
reflected on the December 31, 1997, balance sheet.
NOTE 3 - SUBSEQUENT EVENTS
Subsequent to year end, the company entered into a settlement with
certain creditors of VDO-Pak, Inc., a Florida corporation. Those
creditors represent substantially all of the outstanding trade accounts
payable of the Company at December 31, 1997. The creditors were offered
a cash amount equaling ten percent of the balance due, before interest
and service charges, and Series B preferred shares, with a par value
$100 per share. The number of preferred shares issued was determined by
dividing the remaining debt, after the ten percent cash payment, by
$100. The estimated number of shares to be issued to all creditors is
estimated to be 1,640.
20
<PAGE>
NOTE 3 - SUBSEQUENT EVENTS (continued)
In April, 1998 the Company finalized a stock for stock acquisition of
all the outstanding shares of Parsons Industries, Inc. Parsons
Industries, Inc. operates a facility in Southern Oregon, which
remanufactures pine lumber. Parsons' primary assets consist of accounts
receivable, inventory and fixed assets. Based on unaudited internal
financial statements, assets and liabilities at March 31, 1998 were
approximately $2,864,000 and $2,728,000, respectively. Gross sales for
the year ended December 31, 1998 are estimated to approximate
$6,500,000. Management has estimated the results of Parsons' operations
for the year ended December 31, 1998 to be at break-even. The terms of
the acquisition agreement called for a one-for-one exchange of the
Company's common stock for 6,500 of Parsons 16,500 shares and the
issuance of options for 10,000 shares of the Company's common stock in
exchange for the remaining 10,000 shares of Parsons stock. The options
issued have an exercise price of $10 per share.
NOTE 4 - INCOME TAXES
Statement of Financial Accounting Standard (SFAS) Number 109,
"Accounting for Income Taxes," mandates the assets and liability
approach to determine the income tax provision or benefit. Deferred
income tax assets and liabilities are recognized for the tax
consequences of temporary differences in the carrying value of assets
and liabilities for financial reporting and income tax purposes. There
was no income tax benefit or provision recorded in the current period.
As of March 31, 1997, the Company had a remaining federal net operating
loss carryforward (NOL) of approximately 14,200,000 expiring in 1998
through 2011. Management has assessed the likelihood of utilizing the
NOL as low, and as such, has placed a valuation allowance of 100%
against the benefits associated with this NOL.
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2
<CURRENT-LIABILITIES> 322
<BONDS> 0
0
0
<COMMON> 6,113
<OTHER-SE> (6,533)
<TOTAL-LIABILITY-AND-EQUITY> 2
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 20
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (50)
<INCOME-TAX> 0
<INCOME-CONTINUING> (50)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50)
<EPS-PRIMARY> (5.09)
<EPS-DILUTED> (5.09)
</TABLE>
