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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 December 31, 1995
Commission file number 1-9206
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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
Suite A
San Juan Capistrano, CA 92675
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Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 488-2184
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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 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 February 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 I - FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Condensed Financial Statements
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<TABLE>
<CAPTION>
Page
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<S> <C>
Condensed Balance Sheets
December 31, 1995 and September 30, 1995 3
Condensed Statements of Operations
For the Three Months Ended December 31, 1995
and December 31, 1994 4
Condensed Statements of Cash Flows
For the Three Months Ended December 31, 1995
and December 31, 1994 5
Notes to be Condensed Financial Statements 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
Other Information 11
</TABLE>
2
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ENTOURAGE INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31 September 30
1995 1995
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<S> <C> <C>
Current Assets:
Cash $ 1,050 $ 33,405
Trade accounts receivable, net (12,188) (2,051)
Inventory 21,066 213,971
Other current assets 3,683
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Total current assets $ 9,928 $249,008
Property and equipment, net 55,109 99,006
Other assets 11,847 253,80
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Total Assets 76,884 601,818
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</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current Liabilities:
Accounts Payable and accrued liabilities $ 246,112 $ 498,775
Revolving line of credit 0 0
Current portion of long-term debt 0 0
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Total liabilities 246,112 1,278,282
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Stockholders' Equity:
Common stock, $.001 par value. Authorized
25,000,000 shares; issued and
outstanding 5,520,101 shares
at December 1995 and September 1995 $ 5,520 $ 5,520
Additional paid-in capital 3,626,689 3,076,689
Accumulated deficit (3,705,013) (3,662,250)
Less: 1,844,527 shares in December 1995
and 794,527 September 1995 (96,424) (96,424)
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Total stockholders' equity (169,228) (676,465)
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Total Liabilities and Stockholders' Equity $ 76,884 $ 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
December 31 December 31
1995 1994
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<S> <C> <C>
Net sales $586,438 $ 797,929
Cost of sales 87,607 241,233
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Gross margin 498,831 556,696
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Expenses:
G & A 107,370 251,161
Advertising 624 128,630
Selling 337,969 301,946
Professional services 57,629 54,656
Depreciation and amortization 32,123 39,125
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Total expenses 535,715 775,518
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Income (loss) from operations (36,884) (218,338)
Other income (expense) 24,123 4,516
Net income (loss) (12,761) (223,338)
======== =========
Net income (loss) per common share (.003) (.06)
======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
December 31 December 31
1995 1994
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<S> <C> <C>
Net cash provided by (used in)
operating activities $(22,727) $ 20,926
Net cash provided by (used in)
investing activities (9,628) (22,898)
Net cash provided by (used in)
financing activities 0 67,391
-------- --------
Net increase (decrease) in cash (32,355) 65,419
Cash at beginning of period 33,405 101,337
-------- --------
Cash at end of period $ 1,050 166,756
======== ========
</TABLE>
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ENTOURAGE INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
INTERIM FINANCIAL STATEMENTS. The accompanying 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 December 31, 1995
and for all periods presented have been made. Certain information and footnote
data necessary for fair presentation of financial position and results of
operations in conformity with generally accepted accounting principals 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 period ended December 31, 1995, are not
necessarily indicative of operating results for the full year.
SPIN OFF TRANSACTION. On December 21, 1995 the Company and certain
- ---------------------
individual investors entered into an agreement with certain exchanging
shareholders to transfer assets, liabilities, and obligations 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 mark 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 at
the December 21, 1995 closing 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 to not compete
with the other company for a five year period. As a result of the Spin Off
Transaction, a $ 24,069 gain on sale of assets
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was recorded in the quarter ending December 31, 1995.
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 the 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, 1995
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 to offset. EII has also given notice to BII that it is in violation of
the Non-Competition Agreement.
WORKING CAPITAL LOAN (Biogime Franchise Services). Effective with the
- --------------------------------------------------
December 21, 1995 closing of the Spin Off, the company negotiated 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 percent annually. These funds will be used for general
corporate needs during the post spin off, restructuring period.
INVENTORY NOTE AGREEMENT. The company has negotiated an inventory note
- -------------------------
arrangement with Arizona Natural Resources (ANR), its primary supplier, to
provide the company inventory 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. No payments will be required on the note for a
six month period. After which the balance of $55,000 will be payable over a
six month period.
RELOCATION OF CORPORATE OFFICES. Effective with the December 21, 1995
- --------------------------------
closing of the spin off (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.
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ENTOURAGE INTERNATIONAL, INC.
MANAGEMENT DISCUSSIONS AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESTRUCTURING, LIQUIDITY, CAPITAL RESOURCES
- -------------------------------------------
The pre spin off restructuring of the company which began in 1995 had some
impact during the quarter ended December 31, 1995, but the company's sales
levels and liquidity continue to be at unacceptable levels.
As a result of the spin off of the Direct Sales Division (see Spin Off
Transaction) the company will be focusing its efforts on the consolidation of
management functions, reductions in G&A expense levels and further development
and expansion of its corporate and franchise Biogime Skin Care Center programs.
The company's liquidity shortage continued to be severe during the quarter
ending December 31, 1995. The company had current liabilities in excess of
current assets of $236,184 as of December 31, 1995, compared with current
liabilities in excess of current assets of $249,767 as of September 30, 1995.
Prior to the Spin Off Transaction on December 21, 1995, the company's current
liabilities exceeded its current assets by approximately $466,520. The pre spin
off increase in the company's working capital deficit of about $216,753 during
the quarter ending December 31, 1995 was due to the reclassification of
approximately $203,992 classified as current liabilities on December 31, 1995
and long term liabilities as of September 30, 1995 and the $12,761 net loss
incurred during the quarter.
Cash decreased from $33,405 as of September 30, 1995 to $1,050 as of December
31, 1995 primarily as a result of operating losses incurred during the quarter
and the transfer of assets and liabilities in the spin off. The company's pre
spin off cash balance as of December 31, 1995 was $38,983 of which $37,433 was
transferred to BII on closing of the spin off. After the spin off, the company
negotiated a $175,000 working capital loan from Biogime Franchise Services
(BFS), and a $55,000 inventory financing arrangement with Arizona Natural
Resources (ANR) its primary supplier. The working capital loan from BFS is a
demand note and the inventory note from ANR is payable in six monthly principal
payments starting October 15, 1996. Pursuant to the spin off agreement, the
company has agreed to pay six monthly installments of $25,000 to BII with the
first payment due on January 5, 1996.
The company has reduced inventory levels from $213,971 to approximately
$21,066 during the quarter ended December 31, 1995 primarily as a result of the
transfer of the warehouse inventory to BII in the spin off. A reduced warehouse
inventory level has been established by the company and will be financed with
the ANR inventory note.
Accounts payable and accrued liabilities have been reduced from approximately
$498,775 as of September 30, 1995 to $246,112 as of December 31, 1995 primarily
as a
8
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result of liability transfers to BII in the spin off.
RESULTS OF OPERATIONS - QUARTER ENDED DECEMBER 31, 1995 COMPARED WITH QUARTER
- -----------------------------------------------------------------------------
ENDED DECEMBER 31, 1994.
- ------------------------
The net loss for the quarter ended December 31, 1995, was $12,761 ($.003 per
share), compared to the net loss of $242,152 ($.06 per share) for the quarter
ended December 31, 1994. The net loss resulted from a decrease in sales of 29%
or approximately $237,000, and decreased gross margins of approximately $169,000
in the quarter ended December 31, 1995 compared with the quarter ended December
31, 1994. A gain on sale of assets of $ 24,069 was recorded in the quarter
ending December 31, 1995 as a result of the Spin Off Transaction. During the
same period the company reduced its advertising expenses by approximately
$128,000 and its selling, general, and administrative expenses by $279,000.
Legal expenses increased by $31,000.
Net sales for the quarter ended December 31, 1995 were $586,438 compared with
net sales of $823,452 for the quarter ended December 31, 1994. The decrease in
net sales was generally because of reduced volumes in the retail and franchise
division where the company reduced its price by about 33% pursuant to a contract
with Biogime Franchise Services, Inc. ("BFS"), a company which provides all
franchise services on behalf of Entourage. During the quarters ended December
31, 1995 and 1994 respectively, net sales declined in the retail division by
approximately $226,000 (52%), the franchise division by approximately $81,000
(61%), and the international division by approximately $36,000 (73%). Net sales
in the Direct Sales Division increased by $10,000 in the quarter as compared to
the same quarter in 1994. Telemarketing, which did not exist in 1994,
contributed $96,280 in net sales in the three months ending December 31, 1995.
Gross margin was 85% for the quarter ended December 31, 1995 and 81% for the
quarter ended December 31, 1994. Gross margins were 90% in the retail division
and 37% in the direct sales division.
Operating expenses for the quarter ended December 31, 1995 were about $250,000
compared with about $270,000 for the quarter ended December 31, 1994. As a
result of the agreement with BFS, operating expenses in the franchise division
were $4,000 less in the quarter ended December 31, 1995 compared with the
quarter ended December 31, 1994. Operating expenses in the direct marketing
division decreased about $13,000. Operating expenses in the international
division decreased by about $4,000. Operating expenses in the retail division
decreased about $192,000 in the quarter ended December 31, 1995 compared with
the quarter ended December 31, 1994. Two less retail stores were open in 1995.
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 reduced its advertising expenditures during the quarter ended
December 31, 1995 compared with the quarter ended December 31, 1994 from about
9
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$127,000 to about $562, primarily to refocus its advertising efforts and reduce
the advertising costs. Net sales have declined; however, advertising as a
percentage of the net sales is .01% in the quarter ended December 31, 1995
compared with 16% in the quarter ended December 31, 1994. In the retail
division, where most advertising dollars are spent, advertising as a percentage
of the net sales for the quarter ended December 31, 1995 was .03%, compared with
29% for the quarter ended December 31, 1994.
Selling, general and administrative expenses decreased by about $107,768 for
the quarter ended December 31, 1995 compared with the quarter ended December 31,
1994, primarily as a result of restructuring expenses recorded by the company in
the quarter ending December 31, 1994.
Professional services increased by about $31,000 of legal fees related to the
spin off transaction.
10
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PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
<C> <S>
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
--------------------------------
(a) Exhibits
--------
None.
(b) Reports on Form 8-K
-------------------
Announcement of spin off transaction filed as of
December 22, 1995.
</TABLE>
11
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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: July 8, 1996 By: /s/ John Riemann
-----------------
John C. Riemann
Chief Executive Officer
(Responsible Financial Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 1,050
<SECURITIES> 0
<RECEIVABLES> (12,188)
<ALLOWANCES> 0
<INVENTORY> 21,066
<CURRENT-ASSETS> 9,928
<PP&E> 313,309
<DEPRECIATION> 258,200
<TOTAL-ASSETS> 76,884
<CURRENT-LIABILITIES> 246,112
<BONDS> 0
0
0
<COMMON> 5,520
<OTHER-SE> (174,748)
<TOTAL-LIABILITY-AND-EQUITY> 76,884
<SALES> 586,438
<TOTAL-REVENUES> 610,561
<CGS> 87,607
<TOTAL-COSTS> 425,576
<OTHER-EXPENSES> 197,746
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (12,761)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,761)
<EPS-PRIMARY> (.003)
<EPS-DILUTED> 0
</TABLE>
