<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
Form 10 - QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
incorporation or organization) No.)
32240 Paseo Adelanto, Ste. A
San Juan Capistrano, California 92675
- ------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 488-2184
--------------
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 X No
---
As of August 15, 1996, there were 3,675,574 shares outstanding of the
issuer's common stock, $.001 par value.
1
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Condensed Financial Statements
---------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed Balance Sheets
June 30, 1996 and September 30, 1995 3
Condensed Statements of Operation
For the Three Months Ended and the Nine
Months Ended June 30, 1996
and June 30, 1995 4 - 5
Condensed Statements of Cash Flows
For the Nine Months Ended June 30, 1996
and June 30, 1995 6
Notes to Condensed Financial Statements 7 - 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 13
</TABLE>
2
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JUNE 30 SEPT 30
1996 1995
---------- ----------
<S> <C> <C>
Cash $ 41,262 $ 33,405
Trade accounts receivable, net 49,073 (2,051)
Inventory 52,046 213,971
Other current assets 1,446 3,683
---------- ----------
Total current assets 121,311 249,008
Property and equipment, net 37,128 99,006
Other assets 15,030 253,803
---------- ----------
Total Assets $173,469 $601,817
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable and accrued liabilities $234,124 498,775
Revolving line of credit 0 0
Current portion of long-term debt 221,904 0
---------- ----------
Total current liabilities 456,028 498,775
Convertible subordinated note payable 0 0
Long-term debt, net of current portion 0 779,507
---------- ----------
Total liabilities 456,028 1,278,282
Stockholders' Equity
Common Stock, $.001 par value. Authorized 25,000,000
shares; issued and outstanding 5,520,101 shares at
June 1996 and September 1995.
September 1995 5,520 5,520
Additional paid-in capital 3,626,689 3,076,689
Accumulated deficit (3,818,344) (3,662,250)
Less: 1,844,527 shares in June 1996 and
794,527 in September 1995 (96,424) (96,424)
---------- ----------
Total stockholders' equity (282,559) (676,465)
---------- ----------
Total Liabilities and Stockholders' Equity 173,469 601,817
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
JUNE JUNE
1996 1995
-------- --------
<S> <C> <C>
Net Sales $330,348 $638,588
Cost of Sales 52,833 124,294
-------- --------
Gross Margin 277,515 514,294
-------- --------
Expenses
Operating 79,591 160,212
Advertising 55,424 11,071
Selling, general and administrative 144,279 340,138
Professional services 6,229 56,503
Depreciation and amortization 7,094 12,355
-------- --------
Total expenses 292,617 580,279
-------- --------
Income (loss) from operations (15,102) (65,986)
Other income (expense) 2,248 9,092
-------- --------
Net income (loss) $(12,854) $(56,894)
======== ========
Net income (loss) per common share $ (.003) (.01)
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statement.
4
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE NINE
MONTHS MONTHS
ENDED ENDED
JUNE JUNE
1996 1995
<S> <C> <C>
Net Sales 1,259,932 2,106,055
Cost of Sales 183,602 383,034
--------- ---------
Gross Margin 1,076,330 1,723,021
--------- ---------
Expenses
Operating 339,033 660,065
Advertising 122,313 168,849
Selling, general and administrative 640,550 1,042,564
Professional services 71,645 218,900
Depreciation and amortization 55,747 80,533
--------- ---------
Total expenses 1,229,288 2,170,911
--------- ---------
Income (loss) from operations (152,958) (447,890)
--------- ---------
Other income (expense) 11,147 26,871
--------- ---------
Net income (loss) (126,087) (436,743)
========= =========
Net income (loss) per common share (.03) (.10)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE NINE
MONTHS MONTHS
ENDED ENDED
JUNE JUNE
1996 1995
--------- ---------
<S> <C> <C>
Net cash provided by (used in) operating
activities $(201,814) $(357,928)
Net cash provided by (used in) investing
activities (2,233) (69,000)
Net cash provided by (used in) financing
activities 211,904 279,433
--------- ---------
Net increase (decrease) in cash 7,859 (9,495)
Cash at beginning of period 33,405 55,223
--------- ---------
Cash at end of period 41,262 45,728
========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1.) INTERIM FINANCIAL STATEMENTS. The accompanying condensed financial
-----------------------------
statements have been prepared in accordance with 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 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 obligations related to the
Direct Sales Division of the Company to a privately held corporation controlled
by the exchanging shareholders.
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. As a result of the Spin Off Transaction, a $24,069 gain on sale of
assets was recorded in the quarter ended December 31, 1995.
Effective with the transaction, and as of the closing date, Julie T. Martin
resigned as
7
<PAGE>
President, C.E.O. 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 C.E.O., 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. EII has also given notice to BII that it is
in violation of the Non-Competition Agreement. BII filed suit on June 14, 1996
against the company claiming breech of contract due to non-payment of claiming
monies allegedly due BII under the contract and additionally claims breeches by
the company under the Non-Competition Agreement. The company has filed a
response indicating its general denial of each and every breech claimed by BII.
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 $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.
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 and 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.
6.) RECLASSIFICATION. Certain amounts in the 1995 condensed financial
-----------------
statements have been reclassified to conform with the 1996 presentation.
8
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
MANAGEMENTS 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 June 30, 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 toward 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
1995 and has relocated 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 $55,424 for the quarter ended June
30, 1996 compared with $11,071 for the quarter ended June 31, 1995. Advertising
results will be closely monitored in these locations as expense levels are
increased. The restructuring program has reduced ongoing 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.
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. This
restructuring has had a positive effect on the Company's financial performance
for the six month period ending June 30, 1996.
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 $334,717 as
of June 30, 1996 compared with current liabilities in excess of current assets
of $249,767 as of September 30, 1995 and $328,963 as of March 31, 1996. The net
loss of $126,087 for the nine months ended June 30, 1996 reduced the working
capital position as of June 30, 1996.
Cash increased from $10,230 as of March 31, 1996 to $41,262 as of June 30,
1996, primarily as a result of loan advances made by BFS. The Company had a
note payable to BFS of about $160,904 as of the quarter ended June 30, 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
9
<PAGE>
exceed $55,000 all of which was outstanding as of June 30, 1996.
Accounts payable and accrued liabilities decreased from $498,775 as of
September 30, 1995 to $234,124 as of June 30, 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 can not 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 an ongoing
concern.
RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 1996
- ---------------------------------------------------
COMPARED WITH QUARTER ENDED JUNE 30, 1995
- -----------------------------------------
The net loss for the quarter ended June 30, 1996 was $12,854 ($.003 per
share), compared with a net loss of $56,894 ($.01 per share) for the quarter
ended June 30, 1995. The net loss resulted from a decrease in sales of about
48%, or $308,240, decreased margins of about 46%, which reduced gross margin by
$236,779 in the quarter ended June 30, 1996 compared with the quarter ended June
30, 1995. During the same comparative periods, the Company reduced selling,
general and administrative and professional services by $195,859 or 34%.
Net sales for the quarter ended June 30, 1996 were $330,348 compared with net
sales of $638,588 for the quarter ended June 30, 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 June
30, 1995 generated $229,489 and $ 13,459 respectively. During the quarters
ended June 30, 1996 and 1995 respectively, net sales declined in the retail
division by about $49,909 (16%). Sales volume in the franchise division
declined about 5% during the quarter ended June 30, 1996 compared with the
quarter ended June 30, 1995.
Gross margin was 84% for the quarter ended June 30, 1996 and 81% 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 89% in the retail division and 62% in the franchise division.
Operating expenses for the quarter ended June 30, 1996 were about $292,617
compared with about $580,279 for the quarter ended June 30, 1995 primarily as a
result 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 June 30,
10
<PAGE>
1996 as compared to the quarter ended June 30, 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 increased its advertising expenditures during the quarters ended
June 30, 1996 to about $55,424 from about $11,071 in the quarter ending June 30,
1995, and about $62,671 in the quarter ended March 31, 1996. Advertising as a
percentage of net sales for the quarter ended June 30, 1996 was 17% compared
with 21% for the quarter ended March 31, 1996.
Selling, general and administrative expenses decreased by about $195,859 for
the quarter ended June 30, 1996 compared with the quarter ended June 30, 1995
primarily as a result of reduced management overheads and expense eliminations
made possible by the spin off of the Direct Sales and International divisions.
Professional services decreased by about $50,274 from legal fees related to
the spin off transaction expensed in the quarter ended June 30, 1996.
RESULTS OF OPERATIONS - NINE MONTHS ENDED JUNE 30, 1996
- -------------------------------------------------------
COMPARED WITH NINE MONTHS ENDED JUNE 30, 1995
- ---------------------------------------------
The net loss for the nine month period ended March 31, 1996 was $126,087 ($.03
per share) compared with a net loss of $436,743 ($.10 per share) for the nine
month period ended June 30, 1996. The net loss resulted from a decrease in
sales of about 40%, or about $846,123, which reduced gross margin by about 38%
or $646,691. A gain on sale of assets of $24,069 was recorded in the six month
period ending June 30, 1996 as a result of the spin off transaction. During
this comparative period, the Company reduced its selling, general and
administrative expenses by $402,014.
Net sales for the nine month period ended March 31, 1996 were $1,259,932
compared with net sales of $2,106,055 for the period ended June 30, 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 nine month period ended June 30, 1995 contributed $700,543 and
$81,026 respectively. Net sales in the franchise division declined by $96,637
and net sales in the retail division, declined by $294,709.
Gross margin was 85% for the nine month period ended June 30, 1996 and 82% for
the nine month period ended June 30, 1995. The increased gross margin
percentage resulted primarily from the effect of the spin off of the Direct
Sales and International divisions which historically have lower gross profit
percentage margins than the retail divisions.
Operating expenses for the nine months ended June 30, 1996 were about $339,033
compared with about $660,065 for the nine months ended June 30, 1995. Operating
expenses in the retail division decreased about $160,815 in the six month period
ended
11
<PAGE>
June 30, 1996 compared with the same nine month period ended June 30, 1995 due
to decreased advertising and overhead.
The Company reduced its advertising expenditures during the nine months ended
June 30, 1996 compared with the nine months ended June 30, 1995 from about
$168,849 to about $122,313, primarily as a result of refocusing its advertising
costs. Advertising as a percentage of net sales was 10% for the nine months
ended June 30, 1996 compared to 8% for the six months ended June 30, 1996.
Selling, general and administrative expenses decreased by about $402,014 for
the nine month period ended June 30, 1995. $69,000 of directors fees in
connection with share awards are included in the March 31, 1995 expense amount
and $75,000 in non-recurring payments to BII is included in the June 30, 1996
expense amount.
Professional services decreased by about $147,255 for the nine month period
ended June 30, 1996 compared to the nine month period ended June 30, 1995 from
legal fees related to the Swipe acquisition and the spin off transaction.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Suit between Selina Southwell and the Company has been completely
dismissed at no expense to the Company.
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
<PAGE>
SIGNATURE
----------
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: August 2, 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> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 41,262
<SECURITIES> 0
<RECEIVABLES> 49,073
<ALLOWANCES> 0
<INVENTORY> 52,046
<CURRENT-ASSETS> 121,311
<PP&E> 317,899
<DEPRECIATION> 280,771
<TOTAL-ASSETS> 173,469
<CURRENT-LIABILITIES> 456,028
<BONDS> 0
0
0
<COMMON> 5,520
<OTHER-SE> (288,079)
<TOTAL-LIABILITY-AND-EQUITY> 173,469
<SALES> 1,259,932
<TOTAL-REVENUES> 1,286,803
<CGS> 183,602
<TOTAL-COSTS> 824,152
<OTHER-EXPENSES> 588,738
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (126,087)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (126,087)
<EPS-PRIMARY> (.003)
<EPS-DILUTED> 0
</TABLE>
