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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission file number 1-9206
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ENTOURAGE INTERNATIONAL, INC.
(Name of Small Business Issuer 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)
Issuer's telephone number, including area code (714) 448-2184
--------------
Securities registered pursuant to section 12(b) of act: None
Securities registered pursuant to section 12(g) of act: None
Common stock $.001 par value.
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 May 15, 1998, there were 22,893,074 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
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Page
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Condensed Balance Sheets
March 31, 1998 and September 30, 1997 3
Condensed Statements of Operations
For the Three Months Ended March 31, 1998
and March 31, 1997 4
Condensed Statements of Operations
For the Six Months Ended March 31, 1998
and March 31, 1997 5
Condensed Statements of Cash Flows
For the Six Months Ended March 31, 1998
and March 31, 1997 6
Notes to Condensed Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II - OTHER INFORMATION 12
2
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ENTOURAGE INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31 September 30
1998 1997
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<S> <C> <C>
Current Assets
Trade accounts receivable, net $ 42,892 $ 9,377
Inventory 95,550 77,302
Prepaid expenses and other current assets 15,600 2,122
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Total current assets 154,042 88,801
Property and equipment, net 71,239 77,493
Intangible assets, net 331,064 277,725
Other assets 26,500 26,110
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Total Assets $ 582,845 $ 470,129
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 207,361 $ 112,795
Notes payable 84,127 86,609
Current portion of long-term debt 49,257 25,315
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Total current liabilities 340,745 224,719
Long term debt 199,887 99,337
Stockholder's Equity
Common stock, $.001 par value. Authorized
25,000,000 shares; issued and outstanding
22,893,074 shares at March 1998 and
September 1997 22,893 22,893
Additional paid-in capital 3,797,592 3,797,592
Accumulated deficit (3,778,272) (3,674,412)
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Total stockholders' equity 42,213 146,073
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Total Liabilities and Stockholders' Equity $ 582,845 $ 470,129
=========== ===========
</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 31 March 31
1998 1997
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<S> <C> <C>
Net Sales $307,735 $274,668
Cost of Sales 64,175 46,238
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Gross Margin 243,560 228,430
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Expenses
Selling and G&A 284,030 228,129
Advertising 9,610 12,667
Depreciation and amortization 17,888 4,213
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Total expenses 311,528 245,009
Operating income (loss) (67,968) (16,579)
Interest expense 7,395 (9,727)
Other income (expense) 5 3,659
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Net income (loss) (75,358) (3,193)
======== ========
Net income (loss) per common share $ (.003) $ (.0001)
======== ========
</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
1998 1997
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<S> <C> <C>
Net Sales $ 615,982 $543,368
Cost of Sales 117,898 105,360
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Gross margin 498,084 438,008
Expenses
Selling and G&A 518,227 420,810
Advertising 38,315 31,198
Depreciation and amortization 33,812 8,378
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Total expenses 590,354 460,386
Operating income (loss) (92,270) (22,378)
Interest expense 11,603 (8,810)
Other income 14 5,494
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Gain (loss) from operations (103,859) (8,074)
Income tax expense 0 0
Net income (loss) (103,859) (8,074)
========= ========
Net income (loss) per common share $ (.005) $ (.0001)
</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
<TABLE>
<CAPTION>
Six Six
Months Months
Ended Ended
March 31 March 31
1998 1997
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<S> <C> <C>
Net cash provided by (used in) operating activities $(43,396) $(205,010)
Net cash provided by (used in) investing activities (78,614) (262,992)
Net cash provided by (used in) financing activities 122,010 486,115
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Net increase (decrease) in cash 0 18,113
Cash at beginning of period 0 0
Cash at end of period $ 0 $ 18,113
======== =========
</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
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of the Company; (ii) the Company's plans and
results of operations will be affected by the Company's ability to manage its
growth and inventory; (iii) the Company's business is highly competitive and the
entrance of new competitors into or the expansion of the operations of existing
competitors in the Company's markets and other operations in the retail climate
could adversely affect the Company's plans and results of operations; and (iv)
other risks and uncertainties from time to time in the Company's filings with
the Securities and Exchange Commission.
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, 1998 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, 1998 are not necessarily
indicative of operating results for the full year.
INVENTORY NOTE AGREEMENT. The Company negotiated an inventory note arrangement
- -------------------------
with Arizona Natural Resources (ANR), its primary supplier, to provide the
Company inventory financing in the form of a line credit of $44,000 on invoiced
amounts to the Company. The line of credit bears an interest rate of 10% per
annum. The amount of one sixth (1/6) of the principal balance outstanding on the
line of credit, plus any accrued interest thereon, shall be due and payable
commencing January 15, 1998, and continuing on the 15th day of each successive
month until the line of credit has been fully paid. The amount outstanding on
the line of credit was $29,281 as of March 31, 1998.
SETTLEMENT AGREEMENT. On December 5, 1997, the Company entered into a Settlement
- ---------------------
Agreement and Mutual Release of All Claims with the franchisee of the Atlanta,
Georgia store, closed in April 1997. In consideration, the Company issued the
franchisee a $59,855 non-interest bearing note and warrant to purchase 85,000
shares of the Company's common stock for $.08 per share. The note is due in 30
monthly installments of $1,995 from January 1998 through June 2000 and the
warrant is exercisable at anytime prior to its expiration on December 5, 2000.
7
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ENTOURAGE INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's liquidity shortage increased during the quarter ending March 31,
1998. The Company had current liabilities in excess of current assets of
$186,703 as of March 31, 1998, compared with current liabilities in excess of
current assets of $135,918 as of September 30, 1997, and $128,455 as of December
31, 1997.
On September 1, 1997, the Company obtained a $50,000 operating line of
credit, against which $50,000 in borrowings was outstanding as of March 31,
1998. However the Company must still rely primarily on operating cash flow and
cash management to sustain its operations. The Company's 1998 operating plan
contemplates improved operating results and cash flow.
Cash remained at $0 as of March 31, 1998, and September 30, 1997.
The Company increased inventory levels from $77,300 to approximately $95,550
during the six months ended March 31, 1998 primarily as a result of a higher
warehouse inventory level established in anticipation of a new advertising
campaign.
Accounts payable and accrued liabilities increased from approximately
$113,000 as of September 30, 1997 to approximately $207,000 as of March 31,
1998, primarily due to accruals for 1997 audit fees, a new catalog, increased
inventory levels and professional fees.
The Company currently has no other credit facilities, and must rely on cash
management and profitability during fiscal year 1998 in order to continue.
Although management believes the Company will improve its profitability, if
management cannot achieve its 1998 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.
8
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RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 1998
----------------------------------------------------
COMPARED WITH QUARTER ENDED MARCH 31, 1997
------------------------------------------
The net loss for the operations for the quarter ended March 31, 1998 was
$75,358 ($.003 per share), compared with a net loss of $3,193 ($.0001 per share)
for the quarter ended March 31, 1997.
Net sales for the quarter ended March 31, 1998 were $307,735 compared with
net sales of $274,668 for the quarter ended March 31, 1997. The increase in net
sales was primarily due to the combination of increased sales volumes of
approximately $101,000 as a result of four former franchise locations being
acquired by the Company in February 1997 and July 1997. In addition the Company
closed two stores in August 1997 accounting for a sales decrease of
approximately $40,000 in the quarter ended March 31, 1998 compared to March 31,
1997 while the franchise division had a sales decrease of approximately $28,000
as a result of the four franchise locations that were acquired as Company retail
locations.
Gross margin was 79% for the quarter ended March 31, 1998 and 83% for the
quarter ended March 31, 1997 due primarily to an out of period adjustment
relating to the quarter ended December 31, 1997. Gross margin remained constant
at 81% for the six month period ended March 31, 1998 and 81% for the six month
period ended March 31, 1997.
Selling, general and administrative expenses increased by about $56,000 for
the quarter ended March 31, 1998 compared with the quarter ended March 31, 1997
due primarily to approximately $51,000 in additional expenses for the four
franchise stores acquired by Company in February 1997 and July 1997 less
approximately $37,000 in reduced expense for the two retail locations closed in
August 1997. Accounting, legal and outside services where up approximately
$14,000 for the quarter ended March 31, 1998 compared to March 31, 1997.
The Company decreased its advertising expenditures during the quarters ended
March 31, 1998 to about $10,000 from about $13,000 in the quarter ending March
31, 1997. The reduced advertising expenditures are primarily due to the need for
a new fresh "infomercial" which incorporates new product lines and the new
"biozhem" name.
9
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RESULTS OF OPERATIONS - SIX MONTHS ENDED MARCH 31, 1998
-------------------------------------------------------
COMPARED WITH SIX MONTHS ENDED MARCH 31, 1997
---------------------------------------------
The net loss for the six month period ended March 31, 1997 was $103,859
($.005 per share) compared with a net loss of $8,074 ($.0001 per share) for the
six month period ended March 31, 1997.
Net sales for the six month period ended March 31, 1998 were $615,982
compared with net sales of $543,368 for the period ended March 31, 1997. The
increase in net sales was due primarily to increased volumes due to the
acquisition of four former franchise locations.
Gross margin remained constant at 81% for the six month period ended March
31, 1998 and 81% for the six month period ended March 31, 1997.
Selling, general and administrative expenses increased by approximately
$97,000 for the six month period ended March 31, 1998 compared with the six
months ended March 31, 1997 due primarily to the additional expenses for the
four former franchise locations acquired by the Company in February 1997 and
July 1997.
The Company increased its advertising expenditures during the six months
ended March 31, 1998 compared with the six months ended March 31, 1997 from
about $31,000 to about $38,000 primarily as a result of refocusing its
advertising costs on direct mailings until a new "infomercial" is completed.
Advertising as a percentage of net sales has remain constant at 6% for the six
months ended March 31, 1998 and 6% for the six months ended March 31, 1997.
10
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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, 1997.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
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None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
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Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
-------------------
None
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: March 15, 1998 By: /s/ John C. Riemann
--------------------------
John C. Riemann
Chief Executive Officer
(Responsible Financial Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 42,892
<ALLOWANCES> 0
<INVENTORY> 95,550
<CURRENT-ASSETS> 154,042
<PP&E> 232,518
<DEPRECIATION> 161,279
<TOTAL-ASSETS> 582,845
<CURRENT-LIABILITIES> 340,745
<BONDS> 0
0
0
<COMMON> 22,893
<OTHER-SE> 19,320
<TOTAL-LIABILITY-AND-EQUITY> 582,845
<SALES> 615,982
<TOTAL-REVENUES> 615,996
<CGS> 117,898
<TOTAL-COSTS> 636,125
<OTHER-EXPENSES> 72,127
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,603
<INCOME-PRETAX> (103,859)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (103,859)
<EPS-PRIMARY> (.005)
<EPS-DILUTED> 0
</TABLE>
