<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number 1-9206
------
ENTOURAGE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Texas 76-0118305
- ----- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
32240 Paseo Adelanto, Ste. A
San Juan Capistrano, CA 92675
- ----------------------- -----
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 448-2184
--------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 of 15 (d) of the Securities Exchange Act of 1934 during the past 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 No X
--- ---
As of May 15, 1996, there were 3,675,574 shares outstanding of the issuer's
common stock, $.001 par value.
1
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ENTOURAGE INTERNATIONAL, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Condensed Financial Statements
---------------------------------------
Page
----
Condensed Balance Sheets
March 31, 1996 and September 30, 1995 3
Condensed Statements of Operations
For the Three Months Ended March 31, 1996
and March 31, 1995 4
Condensed Statements of Operations
For the Six Months Ended March 31, 1996
and March 31, 1995 5
Condensed Statements of Cash Flows
For the Six Months Ended March 31, 1996
and March 31, 1995 6
Notes to Condensed Financial Statements 7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
Other Information 12
2
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ENTOURAGE INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MARCH 31 SEPT 30
1996 1995
---------- ----------
<S> <C> <C>
Current Assets
Cash $ 10,230 $ 33,405
Trade accounts receivable, net 17,750 (2,051)
Inventory 34,902 213,971
Other current assets 3,683
---------- ----------
Total current assets 62,882 249,008
Property and equipment, net 44,223 99,006
Other assets 15,030 253,804
---------- ----------
Total Assets $122,135 $ 601,818
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $211,622 $ 498,775
Revolving line of credit
Current portion of long-term debt 180,222
---------- ----------
Total current liabilities 391,844
Convertible sub-ordinated note payable 779,507
Long-term debt, net of current portion ---------- ----------
Total Liabilities $391,844 $1,278,282
========== ==========
Stockholder's Equity
Common stock, $.001 par value. Authorized 25,000,000
shares; issued and outstanding 5,520,101 shares at
March 1996 and September 1995. 5,520 5,520
Additional paid-in capital 3,626,689 3,076,689
Accumulated deficit (3,805,494) (3,662,250)
Less: 1,844,527 shares in March 1996 and
794,527 in September 1995 (96,424) (96,424)
---------- ----------
Total stockholders' equity (269,709) (676,465)
----------- -----------
Total Liabilities and Stockholders' Equity $122,135 $ 601,818
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
MARCH MARCH
1996 1995
-------- --------
<S> <C> <C>
Net Sales $343,146 $644,109
Cost of Sales 43,162 102,512
-------- --------
Gross Margin 299,984 541,507
-------- --------
Expenses
G&A 164,893 240,935
Advertising 66,263 29,148
Selling 145,488 341,338
Professional services 7,787 39,038
Depreciation and amortization 16,529 29,054
-------- --------
Total expenses 400,960 679,513
-------- --------
Income (loss) from operations
Other income (expense) 500 317
-------- --------
Net income (loss) (100,476) (137,689)
======== ========
Net income (loss) per common share $ (.03) $ (.03)
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX SIX
MONTHS MONTHS
ENDED ENDED
MARCH MARCH
1996 1995
--------- ----------
<S> <C> <C>
Net Sales $ 929,584 $1,467,470
Cost of Sales 130,769 258,736
--------- ----------
Gross margin 798,815 1,208,734
--------- ----------
Expenses
G&A 259,444 568,853
Advertising 66,887 157,778
Selling 496,279 702,424
Professional services 65,416 93,398
Depreciation and amortization 48,651 68,179
--------- ----------
Total expenses 936,677 1,590,632
--------- ----------
Income (loss) from operations (137,862) (381,898)
--------- ----------
Other income (expense) 24,623 2,055
--------- ----------
Net income (loss) (113,239) (379,843)
========= ==========
Net income (loss) per common share (.03) (.09)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
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ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
SIX SIX
MONTHS MONTHS
ENDED ENDED
MARCH MARCH
1996 1995
--------- ---------
<TABLE>
<CAPTION>
<S> <C> <C>
Net cash provided by (used in) operating activities $(188,790) $(267,567)
Net cash provided by (used in) investing activities (4,690) (29,697)
Net cash provided by (used in) financing activities 170,305 251,150
--------- ---------
Net increase (decrease) in cash (23,175) (46,114)
Cash at beginning of period 33,405 101,337
--------- ---------
Cash at end of period $ 10,230 $ 55,223
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
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ENTOURAGE INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1) INTERIM FINANCIAL STATEMENTS. The accompanying condensed financial
-----------------------------
statements have been prepared in accordance with the instructions to quarterly
reports on Form 10-QSB. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and changes in cash flows at March 31,
1996 and for all periods presented have been made. Certain information and foot
note data necessary for fair presentation of financial position and results of
operations in conformity with generally accepted accounting principles have been
condensed or omitted. It is therefore suggested that these statements be read
in conjunction with the summary of significant accounting policies and notes to
financial statements included in the Company's Annual Form 10-KSB. The results
of operations for the periods ended March 31, 1996 are not necessarily
indicative of operating results for the full year.
2) SPIN OFF TRANSACTION. On December 31, 1995, the Company and certain
---------------------
individual investors entered into an agreement with certain exchanging
shareholders to transfer assets, liabilities, and obligation related to the
Direct Sales Division of the Company to a privately held corporation controlled
by the exchanging shareholders James L. Davis (Director), Donna Axum-Whitworth
(Director), Jon P. Goodman (Director), Julie T. Martin (President and C.E.O.).
After the transfer the privately held Company, Biogime International Inc.
("BII"), will be marketing skin care products and health and nutritional
products through independent distributors in the United States and will be
directly marketing such products internationally. Entourage (EII) will be
marketing its skin care products through its traditional retail channels which
include retail stores.
As a part of this transaction the rights to the service marks and trade name
"Biogime" and the logo "Biogime" were transferred from the company to BII who
then licensed these rights back to the company for a fifteen month period.
Additionally, an agreement was reached between the company and BII whereby BII
will not prevent the company from using the secondary mark and logo "Biozhem" in
connection with the operation of its business during and after the fifteen month
license period.
The Company transferred to BII assets estimated by previous EII management to
total $514,000, liabilities totaling $600,000 and preferred stock in Biogime.
The preferred stock in Biogime was issued as a result of the conversion of the
Swipe debt of $550,000 to equity in Biogime. In addition the exchanging
shareholders and directors of EII transferred to EII all of the 1,050,000 shares
of the common stock of the Company owned by the exchanging shareholders. EII,
as a result of the transaction, agreed to pay six payments of $25,000 to BII
($150,000). Both exchanging and remaining shareholders signed mutual Non-
Competition Agreements agreeing not to compete with the other Company for a five
year period.
7
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Effective with the transaction, and as of the closing date, Julie Martin
resigned as President, CEO and Director, James L. Davis resigned as Chairman,
Secretary and Director, and Jon Goodman and Donna Axum Whitworth resigned as
Directors. John Riemann remained as Director and is now Chairman of the Board,
President and CEO, Stan Wylie is now acting Chief Financial Officer, Secretary
and Director, Warren L. Hernand, Paul Reyff, Sr., and Alan Goldsberry are now
Directors.
Subsequent to the closing, and as a result of a final December 21, 1996
accounting reconciliation, EII has determined that the actual assets transferred
to BII totaled $545,345 and the liabilities transferred totaled $569,416. The
largest individual asset difference is in inventory where BII has received
$50,491 more inventory than estimated as of the closing. As a result of this,
EII has exercised its rights under the Agreement by offsetting $50,491 from the
amounts due BII under the contract. BII has disputed EII's right of offset.
EII has also given notice to BII that it is in violation of the Non-Competition
Agreement.
3) WORKING CAPITAL LOAN (Biogime Franchise Services). Effective with the
-------------------------------------------------
December 21, 1995 closing before the spin off, the Company arranged a working
capital loan from Biogime Franchise Services (BFS). BFS agreed to loan the
Company up to $175,000 on a demand note secured by the Company's assets at an
interest rate of eight per cent annually. These funds will be used for general
corporate needs during the post spin off restructuring period.
4) SUPPLIER FINANCING - INVENTORY NOTE AGREEMENT. The Company has negotiated
-----------------------------------------------
an inventory note agreement with Arizona Natural Resources (ANR), its primary
supplier, to provide the Company inventory note financing during the post spin
off restructuring period. The inventory note will be in the amount of $55,000
and will carry an interest rate of 10% per year.
4a) No payments will be required on the note until October 1996 after which
the balance of $55,000 will be payable over a six-month period.
5) RELOCATION OF CORPORATE OFFICES. Effective with the December 21, 1995
--------------------------------
closing of the spin off transaction (see above), the Company relocated its
corporate offices to San Juan Capistrano, California. This move was made to
facilitate the management, marketing and financial restructuring plan put in
place after the spin off. As a result of this relocation, the Company expects
general office staffing levels and other operating costs to be reduced. Costs
of this move were minimal since no employees were relocated, and the Houston
lease was transferred to Biogime International, Inc.
8
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ENTOURAGE INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESTRUCTURING, LIQUIDITY, CAPITAL RESOURCES
- -------------------------------------------
The restructuring begun by the Company in December 1995 had a positive
effect in the quarter ended March 31, 1996, but the Company continues to suffer
from liquidity shortages and less than acceptable sales levels. The
restructuring program includes reducing G&A expense levels, refocusing and
redirecting management resources towards corporate retail and franchise Biogime
Skin Care center profitability improvement, and development of an expanded line
of skin care products under the brand name Biozhem.
The Company closed its Houston, Texas warehouse and general office in
December of 1995 and has relocated both to a smaller and less costly facility in
San Juan Capistrano, California. This relocation had a minimal cost to the
Company due to terms of the spin off which transferred the Houston lease and the
remaining EII employees to BII.
Since January 1, 1996, the Company has increased advertising levels in
corporate retail stores in an effort to attract a larger number of new customers
to the stores. Advertising expenditures were $62,761 for the quarter ended
March 31, 1996 compared with $29,148 for the quarter ended March 31, 1995.
Advertising results will be closely monitored in these locations as expense
levels are increased. The restructuring program has reduced on going general
office and retail store expense levels other than advertising to a level which
the Company considers the minimum level of costs required to improve sales
during 1996.
In addition, during the quarter ended December 31, 1995, the Company spun
off its Direct Sales Division, negotiated a note for a $175,000 working capital
loan, and reached agreement with its primary supplier for a $55,000 inventory
note.
However in spite of the restructuring, the Company continues to experience
severe liquidity shortages as a result of less than acceptable sales levels.
The Company had current liabilities in excess of current assets of $328,963 as
of March 31, 1996 compared with current liabilities in excess of current assets
of $249,767 as of September 30, 1995, and $236,184 as of December 31, 1995. The
net loss of $113, 239 for the six months ended March 31, 1996 reduced the
working capital position as of March 31, 1996.
Cash increased from $1,050 as of December 31, 1995 to $10,230 as of March
31, 1996, primarily as a result of loan advances made by BFS. The Company had a
note payable to BFS of about $138,773 as of the quarter ended March 31, 1996.
The demand note carries an interest rate of 8% and is collateralized by the
assets of the Company. The Company has an inventory note agreement with its
primary supplier for an amount not to exceed $55,000 of which zero was
outstanding as of March 31, 1996. $75,000 was paid and expensed during the
quarter ending March 31, 1996 as a result of obligations to BII
9
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due to the spin off transaction.
Accounts payable and accrued liabilities decreased from $498,775 as of
September 30, 1995 to $211,622 as of March 31, 1996 primarily as a result of
expenses and liabilities transferred to BII in the spin off transaction.
The Company currently has no other credit facilities, and must rely on cash
management and profitability during fiscal year 1996 in order to continue.
Although management believes the Company will improve its profitability, if
management cannot achieve its 1996 operating plan because of sales shortfalls or
other unfavorable events and if liquidity shortages continue, the Company may
find it necessary to further reduce expenses, seek additional funds from outside
the Company, or undertake other actions as may be appropriate. Due to the
deterioration of earnings and working capital, and the net capital deficiency,
there is substantial doubt about the Company's ability to continue as a going
concern.
RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 1996
- ----------------------------------------------------
COMPARED WITH QUARTER ENDED MARCH 31, 1995
- ------------------------------------------
The net loss for the quarter ended March 31, 1996 was $100,476 ($.03 per
share), compared with a net loss of $137,689 (.03 per share) for the quarter
ended March 31, 1995. The net loss for the quarter ended March 31, 1996
resulted primarily from the non-recurring charge of $75,000 paid to BII as a
result of the spin off transaction. The balance of the net loss resulted from a
decrease in sales of about 47%, or about $300,873, decreased margins of about
45%, which reduced gross margin by $241,523 in the quarter ended March 31, 1996
compared with the quarter ended March 31, 1995. During the same comparative
periods, the Company reduced selling, general and administrative and
professional services by about $278,553.
Net sales for the quarter ended March 31, 1996 were $343,146, compared with
net sales of $644,019 for the quarter ended March 31, 1995. The decrease in net
sales was generally because of reduced volumes as a result of the spin off of
the Direct Sales and International Divisions which in the quarter ending March
31, 1995 generated $250,824 and $18,110 respectively. During the quarters ended
March 31, 1996 and 1995 respectively, net sales declined in the retail division
by about $19,379 (6%). Sales volume in the franchise division declined about
23% during the quarter ended March 31, 1996 compared with the quarter ended
March 31, 1995.
Gross margin was 87% for the quarter ended March 31, 1996 and 84% for the
quarter ended March 31, 1995. The increased gross margin percentage results
primarily from the spin off of the Direct Sales Division which historically had
lower gross profits than the retail and franchise divisions. Gross margin
percentages were 91% in the retail division and 63% in the Franchise Division.
Operating expenses for the quarter ended March 31, 1996 were about $400,960
compared with about $679,513 for the quarter ended March 31, 1995 primarily as a
result
10
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of expense reductions made possible by the spin off of the Direct Sales and
International Divisions. Operating expenses in the retail division decreased in
the quarter ended March 31, 1995 as compared to the quarter ended March 31,
1996. Overall, the Company believes that current operating expenses are at a
minimum level to allow the Company to improve its sales volume during fiscal
year 1996.
The Company increased its advertising expenditures during the quarters
ended March 31, 1996 to about $62,671 from about $29,148 in the quarter ending
March 31, 1995, and about $1,295 in the quarter ended December 31, 1995. Net
retail sales have increased $93,021 or 45% in the quarter ending March 31, 1995
as compared to the quarter ending December 31, 1995. Advertising as a
percentage of net sales for the quarter ended March 31, 1996 was 21% compared
with 1% for the quarter ended December 31, 1995.
Selling, general and administrative expenses decreased by about $271,892
for the quarter ended March 31, 1996 compared with the quarter ended March 31,
1995. Selling, general and administrative expense includes $69,000 of directors
fees in connection with share awards in the quarter ended March 31, 1995.
Professional services decreased by about $31,251 from legal fees related to
the Swipe acquisition expensed in the quarter ending March 31, 1996.
RESULTS OF OPERATIONS - SIX MONTHS ENDED MARCH 31, 1996
- -------------------------------------------------------
COMPARED WITH SIX MONTHS ENDED MARCH 31, 1995
- ---------------------------------------------
The net loss for the six month period ended March 31, 1996 was $113,239
($.03 per share) compared with a net loss of $379,843 ($.09 per share) for the
six month period ended March 31, 1995. The net loss resulted from a decrease in
sales of about 37%, or about $537,886, which reduced gross margin by about 34%
or $409,919. As a result of the Spin Off Transaction on December 21, 1995, a $
24,069 gain on sale of assets was recorded in the six month period ending March
31, 1996. During this comparative period, the Company reduced its selling,
general and administrative expenses by $719,556.
Net sales for the six month period ended March 31, 1996 were $929,584
compared with net sales of $1,467,470 for the period ended March 31, 1995. The
decrease in net sales was generally because of reduced volumes and as a result
of the spin off of the Direct Sales and International divisions which in the
comparable six month period ending March 31, 1995 contributed $440,503 and $3
respectively. Net sales in the franchise division declined by $92,752 and in
the retail division, the net sales decline was $244,820.
Gross margin was 86% for the six month period ended March 31, 1996 and 82%
for the six month period ended March 31, 1995. The increased gross margin
percentage results primarily from the effect of the spin off of the Direct Sales
and International divisions which historically have lower gross profit
percentage margins that retail.
11
<PAGE>
Operating expenses for the six months ended March 31, 1996 were about
$235,158 compared with about $620,902 for the six months ended March 31, 1995.
Operating expenses in the retail division decreased about $183,226 in the six
month period ended March 31, 1996 compared with the same six month period ended
March 31, 1995 due to decreased advertising and overhead.
The Company reduced its advertising expenditures during the six months
ended March 31, 1996 compared with the six months ended March 31, 1995 from
about $157,778 to about $66,887, primarily as a result of refocusing its
advertising costs. Advertising as a percentage of net sales is 13% for the six
months ended March 31, 1996 compared to 20% for the six months ended March 31,
1995.
Selling, general and administrative expenses decreased by about $385,744
for the six month period ended March 31, 1996 compared with the six months ended
March 31, 1995. $ 75,000 was paid and expensed during the quarter ending March
31, 1996 as a result of obligations to BII due to the Spin Off Transaction and
$69,000 of directors fees in connection with share awards is included in the
March 31, 1995 expense amount.
Professional services decreased by about $27,982 for the six month period
ended March 31, 1996 compared to the six month period ended March 31, 1995 from
legal fees related to the Swipe acquisition.
12
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There are no significant changes to the information reported in the
Form 10-KSB for the year ended September 30, 1995.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
-----
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits
--------
None.
Reports on Form 8-K
-------------------
None.
13
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SIGNATURES
----------
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.
ENTOURAGE INTERNATIONAL, INC.
-----------------------------
(registrant)
Date: December 12, 1996 By: /s/ JOHN RIEMANN
----------------- ---------------------------
John C. Riemann
Chief Executive Officer
(Responsible Financial Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 10,230
<SECURITIES> 0
<RECEIVABLES> 17,750
<ALLOWANCES> 0
<INVENTORY> 34,902
<CURRENT-ASSETS> 62,882
<PP&E> 317,899
<DEPRECIATION> 273,676
<TOTAL-ASSETS> 122,135
<CURRENT-LIABILITIES> 391,844
<BONDS> 0
0
0
<COMMON> 5,520
<OTHER-SE> (275,229)
<TOTAL-LIABILITY-AND-EQUITY> 122,135
<SALES> 929,584
<TOTAL-REVENUES> 954,207
<CGS> 130,769
<TOTAL-COSTS> 627,048
<OTHER-EXPENSES> 440,398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (113,239)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (113,239)
<EPS-PRIMARY> (.003)
<EPS-DILUTED> 0
</TABLE>
