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, 1996
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: $748,660
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: 9,820 shares of
Common Stock, without par value, on May 2, 1997.
----------
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 10
Item 12. Security Ownership of Certain Beneficial Owners and
Management 13
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 14
Index to Exhibits 15
Financial Statements F-1
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Company Overview
- ----------------
As of this report, Registrant ("Encore") is defunct, with insufficient
assets to meet its obligations. Registrant's only operating subsidiary, VDO-Pak,
Inc., Port Orange, Florida, ceased operations in August 1996. The 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.
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.
Future Efforts to Revive the Business.
- --------------------------------------
Registrant's controlling shareholder is working to revive the company
by settling the claims of the creditors. These creditors include trade vendors,
the Internal Revenue Service, and the Pension Benefit Guarantee Corporation.
Should these settlement arrangements be made, it will be necessary for
Registrant to secure working capital to fund the arrangements. There is no
assurance that this effort will succeed.
ITEM 2. DESCRIPTION OF PROPERTIES
The company has no facilities or premises. Vacant land, carried on the
books as "Land held for sale" was sold in 1997, subsequent to this report.
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
On April 23, 1996, the shareholders approved a 1 for 500 reverse stock
split, in accordance with the Proxy Statement issued February 28, 1996.
4
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Price Range of Common Stock:
1996 1995
--------------- ---------------
High Low High Low
----- ----- ----- -----
First Quarter $0.05 $0.05 $0.06 $0.05
Second Quarter Not traded 0.06 $0.06
Third Quarter Not traded 0.06 $0.05
Fourth Quarter Not traded 0.05 $0.05
In conformance with the reverse stock split approved by the
shareholders on April 23, 1996, shareholders with less than 500 shares had the
right to receive $0.10 per share for their holdings.
The source of the above quotations is published by the National Daily
Quotation Service known as "the pink sheets", and may reflect interdealer
prices, without mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
No dividends have been paid since a 1983 stock dividend, and no cash or
other dividends are contemplated for the foreseeable future.
The number of outstanding shares of the Registrant's common stock as of
May 2, 1997, after giving effect to the 1-for-500 reverse stock split, was
9,820.
As of May 2, 1997, there were 202 record holders of the Registrant's
common stock.
5
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991
-------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Sales $ 749 $ 2,015 $ 3,113 $ 2,919 $ 3,590 $ 4,213
======== ======== ========= ========= ========= ========
Net income (loss) $ 693 $ (384) $ 55 $ (193) $ 134 (1) $ (642) (1)
======== ======== ========= ========= ========= =========
Net income (loss) per
common share: $ .07 $ (.06) $ .01 $ (.03) $ .02 $ (.10)
======== ======== ========= ========= ========= =========
Cash $ 10 $ 8 $ 31 $ 30 $ 36 $ 27
Fixed assets, net 15 8 19 42 59 76
Other assets 9 1,036 1,304 1,391 1,630 1,732
-------- -------- --------- --------- --------- --------
Total assets $ 34 $ 1,052 $ 1,354 $ 1,463 $ 1,725 $ 1,835
======== ======== ========= ========= ========= ========
Current liabilities $ 294 $ 1,709 $ 1,645 $ 1,849 $ 1,918 $ 2,162
Pension liability 267 248 176 105 105 105
-------- -------- --------- --------- --------- --------
Total liabilities $ 561 $ 1,957 $ 1,821 $ 1,954 $ 2,023 $ 2,267
======== ======== ========= ========= ========= ========
Total
stockholders deficit $ (527) $ (905) $ (467) $ (491) $ (298) $ (432)
======== ======== ========= ========= ========= =========
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
During 1995 the Company advanced the majority shareholder $87.5, of
which $13 was repaid. Subsequent to the 1995 year-end, the shareholder began
working with the Bank of California to restructure his personal debts as well as
the Company's debt. There was no guarantee that the shareholder would be
successful in his efforts to restructure the debt, and the Company reserved for
the entire balance of $74.5 at December 31, 1995. This reserve was recorded as a
non-operating expense. This note was written off on December 6, 1996, in
recognition of the insolvency of the majority shareholder.
On December 6, 1996, the Union Bank of California (successor to the
Bank of California) entered into a Settlement Agreement with Registrant,
Registrant's wholly-owned subsidiary, VDO-Pak, Inc., and Registrant's majority
shareholder. This Settlement Agreement discharges all obligations under the note
in exchange for 1,005 shares of Encore common stock held by the majority
shareholder. Other provisions of the Settlement Agreement pertain to the
majority shareholder. Registrant gave effect to this transaction as of December
31, 1996. The entire profit for 1996 was due to the loan settlement.
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. These financial
statements are unaudited.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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 five.
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 56
Chief Executive
Teri E. Engel 1989 1989 Director; Corporate Secretary 47
Robert G. Fligg 1988 - Director 48
Fred J. Kupel 1995 - Director 67
Kenneth L. Wright 1995 1991 Director; 47
Executive Vice President and
Chief Financial Officer
Note: Mr. Wright resigned as an Officer and Director as of December 15, 1997
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. For over five years, Mr. Engel's principal employment has been as
President and Chief Executive Officer of WTD Industries, Inc., Portland, Oregon,
a manufacturer of lumber whose common stock is traded on the NASDAQ national
market system.
Ms. Engel has been a director and Secretary of the Company since 1989.
She served as an executive officer and a director of WTD Industries, Inc. from
1989 to 1994.
8
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
Mr. Fligg has been employed since March of 1991, as Chief Financial
Officer of Dee Forest Products, Inc., in Hood River, Oregon, a manufacturer of
hardboard. He resigned as an Officer March 22, 1991, and was employed by the
Registrant as Corporate Secretary starting August 9, 1988. Effective November
19, 1988, he was elected to the additional office of Vice President-Finance. Mr.
Fligg held both positions until June 30, 1989, at which time he was elected as
Vice President, Treasurer and Assistant Secretary. Beginning in December 1986
and ending in March 1991, he served as Vice President, Treasurer of Encore.
Mr. Fred J. Kupel has been an independent management consultant for
over five 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.
Mr. Kenneth L. Wright was elected Executive Vice President on March 19,
1991. Prior to that date he was an independent management consultant. During
1987 and the balance of the prior five years, he was Chief Operating Officer
with Industrial Leasing Corporation, Portland, Oregon, a lessor of industrial
equipment. Mr. Wright is also an Officer of Encore, serving as Vice President.
Mr. Wright resigned as an Officer and Director as of December 15, 1997
9
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Other Underly All
Annual Restricted ing Other
Name and Compen- Stock Options/ LTIP Comp-
Principal Salary Bonus sation Award(s) SARs Payouts ensation
Position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------- ---- ------ ----- ------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bruce L. Engel, CEO 1996 - - - - - - -
1995 - - - - - - -
1994 - - - - - - -
</TABLE>
No executive officer received cash compensation from the Registrant in
1996 in excess of $100,000.
Directors of the Registrant received no compensation for their services
as directors.
The Registrant has a cash bonus plan for officers and other key
employees of the Registrant and for managers and employees of its subsidiary.
Under the terms of the plan, the President is eligible to receive a quarterly
bonus of 5% of pretax profits earned by the Registrant and/or its subsidiary;
other officers and key employees share ratably on the basis of their base pay in
a quarterly bonus of 15% of consolidated pretax profits of the Registrant. Under
this plan, cash distributions of $0 were made during the year ended December 31,
1996, and $11 were paid in 1995. Cash bonuses to subsidiary managers and
employees is based on a percentage of subsidiary pretax profits and are
distributed ratably each month.
10
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION - Continued
Pension Plan
The Registrant has a defined benefit retirement plan (the "Plan") in
which participation has been frozen since 1990. Until 1990, employees of the
Registrant were automatically covered by the Plan provided they met certain
criteria. Normal retirement under the Plan is the first day of the month
following the employee's 65th birthday. An employee's retirement benefit is
determined according to his final average yearly pay over a five-year base
period, years of service and covered compensation. An employee could elect to
retire as early as 55, but his retirement benefits will be reduced. All
contributions to provide benefits under the Plan and all expenses are paid
entirely by the Registrant. A trust fund has been established to receive and
hold all Plan contributions, interest and other income to pay the benefits
provided by the Plan. There were no contributions made to the Plan in 1996 and
1995 for the Executive Officers named above.
Below is a table demonstrating the general method of calculation of
benefits upon retirement using the average of the highest compensation paid for
five years, exclusive of a portion of the lesser of the highest average
compensation or covered compensation:
Years of Service
Remuneration 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
$ 25,000 $ 7,500 $ 8,750 $ 10,000 $ 11,250 $ 11,250
50,000 15,000 17,500 20,000 22,500 22,500
75,000 22,500 26,500 30,000 33,750 33,750
100,000 30,000 35,000 40,000 45,000 45,000
150,000 45,000 52,500 60,000 67,500 67,500
200,000 60,000 70,000 80,000 90,000 90,000
Stock Option Plan
The Registrant has a stock option plan for key employees and directors
that provides for the granting of incentive stock options (within the meaning of
Section 422A of the Internal Revenue Code) or nonqualified stock options, to
purchase shares of the Registrant's common stock at 100% of the fair market
value at the date of the grant. The plan is administered by a committee of three
or more disinterested persons designated by the Board of Directors, and it
terminates on the earlier of January 8, 1999 or the issuance of the full number
of shares allocated. The aggregate number of shares for which options may be
11
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION - Continued
granted under the plan is 1,400, subject to such adjustments as may be necessary
or appropriate upon the payment of stock dividends or by a split-up or
split-down of the stock. Option shares are made available from the authorized
but unissued shares of the Registrant's common stock. The plan includes
restrictions as to annual carryover limits on the fair market value of incentive
stock options, as well as provisions with respect to expiration, cancellation
and the surrender of any repayment for exercisable options.
All options granted under the plan through December 31, 1996 are
nonqualified options, have a maximum duration of ten years, and are exercisable,
cumulatively, in annual increments of 20% commencing six months after the date
of the grant.
As of December 31, 1996, no options have been granted for the
Registrant's stock. No options are expected to be issued in the foreseeable
future.
12
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth the number of shares of common stock
beneficially owned as of May 2, 1997 by (i) persons known to be beneficial
owners of more than five percent (5%) of the Registrant's common stock, (ii)
each of the directors, and (iii) all officers and directors as a group. Except
as otherwise indicated by footnote, the owner has sole voting and investment
power with respect to such shares.
Amount and Nature
Name and Address of Beneficial Owner of Beneficial Ownership(1)(2) Percent
- ------------------------------------ ----------------------------- -------
Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
- -------------------------- -------------------- --------
Bruce L. and Teri E. Engel 3,017 (3) 30.72 %
Bruce L. Engel 259 2.64 %
Robert G. Fligg - -
Fred J. Kupel 40 .41 %
Kenneth L. Wright 562 (4) 5.72 %
--------- -----
All Directors and Officers
as a group (5 persons) 3,878 (5) 39.49 %
========= =====
(1) As determined by reference to the transfer agent's report of May 2,
1997, or the beneficial owner's most recent Form 4 or 13D filing.
(2) Beneficial Ownership is calculated as of May 2, 1997.
(3) Mr. and Mrs. Engel, whose business address is P.O. Box 5805, Portland, OR
97228, own these shares jointly and share voting and investment power.
(4) Shares subject to option under the Registrant's Stock Option Plan are
deemed to be outstanding only for the purpose of computing the percent of
class owned by the individual optionee.
(5) Mr. Wright owns these shares jointly with his spouse and shares voting and
investment power.
13
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995 the Company advanced the majority shareholder $87.5, of
which $13 was repaid. Subsequent to the 1995 year-end, the shareholder, being
unable to repay the Bank of California in accordance with the terms of the
obligation, began working with the Bank of California to restructure his
personal debts as well as the Company's debt. There was no guarantee that the
shareholder would be successful in his efforts to restructure the debt, and the
Company reserved for the entire balance of $74.5 at December 31, 1995. This
reserve was recorded as a non-operating expense. This note was written off on
December 6, 1996, at the time the majority shareholder settled the note
payable to the Union Bank of California (successor to the Bank of California).
On December 6, 1996, the Union Bank of California entered into a
Settlement Agreement with Registrant, Registrant's wholly-owned subsidiary,
VDO-Pak, Inc., and Registrant's majority shareholder. This Settlement Agreement
discharges all obligations under the note in exchange for 1,005 shares of Encore
common stock held by the majority shareholder. Other provisions of the
Settlement Agreement pertain to the majority shareholder. Registrant gave effect
to this transaction as of December 31, 1996.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The Financial Statements are
listed in the Index to Consolidated Financial
Statements on page F-1 of this Annual Report.
(a)(2) Exhibits:
Exhibit Description
27 Financial Data Schedule(1)
(b) Reports on Form 8-K. During the quarter ended
December 31, 1996, the Company filed no reports on
Form 8-K.
- ----------
(1) This schedule has been submitted in the electronic form
prescribed by EDGAR.
14
<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: 3/31/98 /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: 3/31/98
Kenneth L. Wright
Executive Vice President and Chief Financial Officer
Mr. Wright resigned as an Officer and Director as
of December 15, 1997
Date: 3/31/98 /s/ Bruce L. Engel
--------------------
Bruce L. Engel
Director
Date: 3/31/98 /s/ Fred J. Kupel
--------------------
Fred J. Kupel
Director
Date: 3/31/98 /s/ Robert G. Fligg
--------------------
Robert G. Fligg
Director
Date: 3/31/98 /s/ Teri E. Engel
--------------------
Teri E. Engel
Secretary and Director
14
<PAGE>
THE ENCORE GROUP, INC.
INDEX TO EXHIBITS
27 Financial Data Schedule
This schedule has been submitted in the electronic form [rescribed by EDGAR.
15
<PAGE>
The Encore Group, Inc.
Index to Consolidated Financial Statements
(Unaudited)
-------
Page
----
Consolidated Balance Sheet as of December 31, 1996 F-1
Consolidated Statements of Income for the years ended
December 31, 1996 and 1995 F-2
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the years ended December 31, 1996 and 1995 F-3
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 F-4
Notes to Consolidated Financial Statements F-5
<PAGE>
THE ENCORE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
DECEMBER 31,
1996 1995
----------- ----------
ASSETS
CURRENT ASSETS
Cash $ 10 $ 8
Accounts receivable, net (1) 291
Inventory 0 200
Prepaid expenses 10 23
----------- ----------
Total current assets 19 522
----------- ----------
NON-CURRENT ASSETS
Land held for sale 15 15
Fixed assets, net 0 8
Goodwill, net 0 507
----------- ----------
15 530
----------- ----------
Total assets $ 34 $ 1,052
=========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 275 $ 371
Accrued liabilities 19 100
Note payable 0 1,238
----------- ----------
Total current liabilities 294 1,709
PENSION LIABILITIES 267 248
----------- ----------
Total liabilities 561 1,957
----------- ----------
STOCKHOLDERS' DEFICIT
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 (27,458) (27,836)
Pension liability adjustment (157) (157)
----------- -----------
Total stockholders' deficit (527) (905)
----------- -----------
Total liabilities and
stockholders' deficit $ 34 $ 1,052
=========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
F-1
<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,
1996 1995 1994
<S> <C> <C> <C>
SALES $ 749 $ 2,015 $ 3,113
LESS COST OF SALES 756 1,283 1,965
---------- ---------- ---------
GROSS PROFIT (7) 732 1,148
---------- ---------- ---------
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 339 808 998
---------- ---------- ---------
Operating income (loss) (346) (76) 240
---------- ---------- ----------
NON-OPERATING REVENUES & EXPENSES
Other income - - 1
Write-down of real estate investment - (45) -
Settlement of note payable and adjustments 1,049
Other expense - (112) (63)
Interest expense (10) (151) (123)
---------- ---------- ----------
Total non-operating revenues & expenses 1,039 (308) (185)
---------- ---------- ----------
NET INCOME (LOSS) $ 693 $ (384) $ 55
========== ========== ==========
PER SHARE
Net income (loss) per share $ .07 $ (.06) $ .01
========== ========== ==========
Average common shares outstanding (1) 9,820 6,112,848 6,112,848
========== ========== =========
</TABLE>
- ----------
(1)After giving effect to the 1 for 500 reverse stock split of April 23, 1996.
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
<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 ADDITIONAL PENSION
OUTSTANDING PAID-IN RETAINED LIABILITY
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
<S> <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 loss for 1996 - - - (384) - (384)
------------- ---------- ----------- ----------- ----------- ---------
Balance, December 31, 1996 (1) 9,820 $ 6,113 $ 20,975 $ (27,836) $ (157) $ (905)
============= ========== ========== =========== =========== =========
</TABLE>
- ----------
(1) Number of shares after reverse stock split.
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
THE ENCORE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED DECEMBER 31,
1995 1995 1994
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS RELATED TO OPERATING ACTIVITIES
Net income (loss) $ 693 $(384) $ 55
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 6 13 23
Allowance for stockholder receivable - 75 -
Amortization of goodwill - 25 26
Pension liability adjustment - (54) (31)
Loss (gain) on disposal or writedown of assets - 45 (1)
Accounts receivable 292 64 42
Inventory 200 105 19
Prepaid expenses and other 13 29 -
Accounts payable (96) 97 (138)
Pension liability 19 72 71
Accrued liabilities (81) (3) (36)
------ ------ ------
Net cash provided by operating activities 1,046 84 30
------ ------ ------
CASH FLOWS RELATED TO INVESTING ACTIVITIES
Loan to stockholder - (75) -
Proceeds from sale of fixed assets (8) - 2
Purchases of fixed assets - (2) (1)
Closure of facilities, net 202
------ ------ ------
Net cash provided by (used in) investing activities 194 (77) 1
------ ------ ------
CASH FLOWS RELATED TO FINANCING ACTIVITIES
Settlement of note payable (1,238)
Principal payments on notes payable - (30) (30)
------ ------ ------
Net cash used in financing activities (1,238) (30) (30)
------ ------ ------
NET INCREASE (DECREASE) IN CASH 2 23 1
CASH, beginning of year 8 31 30
CASH, end of year $ 10 $ 8 $ 31
====== ====== ======
INTEREST PAID $ 10 $ 151 $ 119
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
THE ENCORE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(In thousands, except share and per share data)
NOTE A - BASIS OF PRESENTATION AND MANAGEMENT'S PLANS
The consolidated financial statements include the accounts of The
Encore Group, Inc., and its wholly owned subsidiary, VDO-Pak, Inc. (referred to
hereafter as the "Company"). All significant intercompany accounts and
transactions have been eliminated.
VDO-Pak, Inc. has ceased operations and is defunct.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
Accounts receivable - The allowance for doubtful accounts was $ 0 and
$31 at December 31, 1996 and 1995, respectively. Assets for which the Company
has credit risk are trade accounts receivables which amount to $(1) and $322 at
December 31, 1996 and 1995, respectively. The Company no longer has trade
customers.
Inventory - Inventory is stated at the lower of cost (first-in,
first-out method) or market at December 31, 1995. Inventory consisted of
components and products for manufacture and resale. At December 31, 1995 a
reserve of $127 was provided to record slow-moving inventory at its estimated
net realizable value. At December 31, 1996, there was no inventory.
Fixed assets - Fixed assets are stated at cost, net of accumulated
depreciation of $174 in 1995. There were no fixed assets in 1996. Expenditures
for additions to property and equipment have been capitalized. The cost of
repairs and maintenance is expensed as incurred. Depreciation of property and
equipment is computed principally on the straight-line basis over the estimated
useful lives of the assets (generally three to eight years). Leasehold
improvements are amortized on the straight-line basis over the lesser of the
term of the lease or estimated useful lives of the improvements.
Income taxes - Income taxes are recognized during the year in which
transactions enter into the determination of financial statement income with
deferred taxes provided for temporary differences between amounts of assets and
liabilities for financial reporting purposes and such amounts as measured by tax
laws.
F-5
<PAGE>
NOTE B - SIGNIFICANT ACCOUNTING POLICIES - continued
Amortization of goodwill - Goodwill relates to the original acquisition
of VDO-Pak and was amortized on a straight line basis over the expected benefit
of 20 years. Accumulated amortization was $143 at December 31, 1995 and
fully written off at December 31, 1996.
Income (loss) per share - Income (loss) per share is based on the
weighted average number of shares of common stock outstanding during each
period.
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 could differ from those
estimates.
NOTE C - LAND HELD FOR SALE
In June 1988, the Company took title to commercial property in
Gillette, Wyoming as resolution of the land development project. This property
is carried at its estimated fair market value of $15 at December 31, 1996.
NOTE D - OFFICER RECEIVABLE
During 1995 the Company advanced the majority shareholder $87.5, of
which $13 was repaid. Subsequent to the 1995 year-end, the shareholder began
working with the Bank of California to restructure his personal debts as well as
the Company's debt. There was no guarantee that the shareholder would be
successful in his efforts to restructure the debt, and the Company reserved for
the entire balance of $74.5 at December 31, 1995. This reserve was recorded as a
non-operating expense. This note was written off on December 6, 1996, in
recognition of the insolvency of the majority shareholder.
F-6
<PAGE>
NOTE F - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31:
1996 1995
-------- --------
Accrued salaries and payroll taxes $ - $ 15
Professional fees - 12
Other 19 73
-------- --------
$ 19 $ 100
======== ========
NOTE G - INCOME TAXES
Income taxes are accounted for using an asset and liability approach,
which requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the financial
statement and tax basis of assets and liabilities at the applicable enacted tax
rates. There was no income tax expense or benefit recorded in 1996, 1995 or
1994.
As of December 31, 1996, the Company has federal operating loss (NOL)
carryforwards of approximately $14,218 available to offset its future income tax
liability. The NOL carryforwards expire as follows:
Year Federal
of Expiration Amount
------------- --------
1997 $ 1,555
1998 $ 2,971
1999 1,598
2000 3,675
2001 2,010
2002 373
2003 2,373
2004 16
2005 44
2006 611
2008 161
2010 383
---------
$ 15,770
=========
Additionally, the Company has an investment tax credit carryforward of
approximately $9. This carryforward expires, if not utilized, through 1999.
Management periodically reviews the items comprising the net deferred
tax assets as to the likelihood of their future deductibility for assessing the
need for a valuation allowance. As of December 31, 1996, the deferred tax assets
have been completely offset by a valuation reserve. The valuation reserve was
established due to the uncertainty surrounding the continued operations of the
Company (see Note A).
F-7
<PAGE>
NOTE H - LEASE AND RENTAL COMMITMENTS
The Company leased its principal office space; the lease expired
February 28, 1997. The lease provided for an annual rent of
approximately $23. VDO-Pak entered into a lease on July 1995, for
plant and office space, which expired in August 1996. Annual rent and fees were
approximately $35 per year. There were no future minimum payments under
noncancellable operating leases and rental agreements with initial terms of one
year or more at December 31, 1996.
NOTE I - 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, 1995, there are only seven past employees who are covered
under the plan. The assets held by the plan are primarily invested in a mutual
fund that invests in a diversified portfolio of equity securities, corporate
bonds, and short-term investments.
F-8
<PAGE>
NOTE I - RETIREMENT PLAN - continued
The components of net periodic pension expense for the year ended
December 31 are as follows:
1996 1995 1994
--------- --------- ---------
Service cost $ - $ - $ -
Interest cost 44 41
Actual return on assets (74) (19)
Unrecognized net (gain) loss 4 3
Deferred asset (gain) loss 44 (12)
--------- --------- ---------
Net periodic pension expense $ N/A $ 18 $ 13
========= ========= =========
The funded status of the plan at December 31 is as follows:
1996 1995
--------- ---------
Accumulated benefit obligation,
including vested benefit obligation
of $660,254 at December 31, 1995 $ 660 $ 660
========= =========
Plan assets at fair market value $ 412 $ 412
Projected benefit obligation (660) (660)
--------- ---------
Funded status (248) (248)
Unrecognized net (gain) loss 157 157
Adjustment for minimum liability (157) (157)
--------- ---------
Accrued pension liability $ (248) $ (248)
========= =========
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7% for 1995 and 8% for
1994. The expected long-term rate of return on assets was 7% and 8% for 1995 and
1994, respectively.
NOTE J - STOCK OPTION PLAN
The stockholders ratified a stock option plan in 1989 for key employees
and directors that provides for the granting of incentive stock option (within
the meaning of Section 422A of the Internal Revenue Code) or nonqualified stock
options to purchase shares of the Company's common stock at the fair market
value at the date of grant. Pursuant to the plan, options to purchase 700,000
shares may be issued. All options are nonqualified and have a maximum duration
of ten years. There are no outstanding options eligible for exercise as of
December 31, 1995.
F-9
<PAGE>
NOTE K - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The unaudited quarterly financial information for the years ended
December 31, 1996 and 1995, is as follows:
1996 QUARTER ENDED
---------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- --------- --------- ---------
Sales $ 381 $ 279 $ 77 $ 12
========= ========= ========= =========
Gross profit $ 119 $ 92 $ (9) $ (209)
========= ========= ========= =========
Net income (loss) $ (66) $ (120) $ (133) $ 1,012
========= ========= ========= =========
Per share - net loss $ (.01) $ (.02) $ (.02) $ .12
========= ========= ========= =========
1995 QUARTER ENDED
---------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- --------- --------- ---------
Sales $ 380 $ 449 $ 506 $ 680
========= ========= ========= =========
Gross profit $ 160 $ 165 $ 183 $ 224
========= ========= ========= =========
Net loss $ (83) $ (63) $ (50) $ (188)
========= ========= ======== =========
Per share - net loss $ (.01) $ (.01) $ (.01) $ (.03)
========= ========= ========= =========
F-9
<PAGE>
<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, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> (1)
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19
<PP&E> 15
<DEPRECIATION> 0
<TOTAL-ASSETS> 34
<CURRENT-LIABILITIES> 294
<BONDS> 0
0
0
<COMMON> 6,113
<OTHER-SE> (6,640)
<TOTAL-LIABILITY-AND-EQUITY> 34
<SALES> 749
<TOTAL-REVENUES> 749
<CGS> 756
<TOTAL-COSTS> 756
<OTHER-EXPENSES> 339
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (10)
<INCOME-PRETAX> 693
<INCOME-TAX> 0
<INCOME-CONTINUING> 693
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 693
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
