SEC Filing No. 0000823553
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended February 28, 1997
Commission file number 1-11636 and 0-21050
ENCORE MARKETING INTERNATIONAL, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 52-1439053
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4501 Forbes Boulevard, Lanham, Maryland 20706
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 301-459-8020
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on
which registered
Common Stock $.01 Par Value
4% Series A Convertible
Participating Preferred Stock
Par Value $10.00 per share
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve (12)
months (or for such shorter period that the registrant was
required to file such report(s)), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
As of February 28, 1997, there were 3,221,000 shares of Common
Stock $.01 par value, outstanding.
Number of pages in the report: 13
<PAGE>
FORM 10-Q
ENCORE MARKETING INTERNATIONAL, INC. AND SUBSIDIARIES
For the three and nine months ended February 28, 1997
PART I - Financial Information
Item 1. Financial Statements.
General
The information contained in this report is furnished for the
Registrant, Encore Marketing International, Inc. and
subsidiaries. The unaudited, condensed consolidated financial
statements have been prepared in accordance with the instructions
to Form 10-Q and, therefore, omit or condense certain footnotes
and other information normally included in financial statements
prepared in accordance with generally accepted accounting
principles. In the opinion of management, the information in
this report reflects all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the
financial information for the interim periods presented. Results
of operations for the three and nine months ended February 28,
1997, will not be necessarily indicative of the results for the
fiscal year ending May 31, 1997. This report should be read in
conjunction with the Annual Report on Form 10-K for the fiscal
year ended May 31, 1996.<PAGE>
FORM 10-Q
ENCORE MARKETING INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 28 May 31
1997 1996
ASSETS:
(unaudited)
Current assets:
Cash and cash equivalents $ 372,000 $ 632,000
Cash and cash equivalents,
restricted 765,000 765,000
Accounts receivable
Membership 6,653,000 6,984,000
Other 234,000 380,000
Supplies and deferred
solicitations 1,293,000 1,633,000
Prepaid expenses 130,000 154,000
Total current assets 9,447,000 10,548,000
Property and equipment:
Furniture and equipment 2,435,000 3,750,000
Leasehold improvements 130,000 225,000
Furniture and equipment
under capital leases 1,352,000 2,028,000
3,917,000 6,003,000
Less accumulated depreciation
and amortization (3,435,000) (5,245,000)
Net property and
equipment 482,000 758,000
Other assets:
Deferred financing cost,
net of amortization 30,000 59,000
Other 136,000 125,000
Total other assets 166,000 184,000
Total assets $ 10,095,000 $ 11,490,000
<PAGE>
FORM 10-Q
ENCORE MARKETING INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 28 May 31
1997 1996
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current Liabilities:
Current portion of
Capital lease obligations $ 164,000 $ 171,000
Notes payable - related party 170,000 113,000
Notes payable 2,552,000 692,000
Accounts payable 3,038,000 3,600,000
Other current liabilities 1,664,000 2,281,000
Reserve for cancellations 3,259,000 3,088,000
Total current liabilities 10,847,000 9,945,000
Long Term Debt, Net of Current Portion:
Capital lease obligations 222,000 338,000
Notes payable 2,481,000 4,530,000
Other -- 31,000
2,703,000 4,899,000
Stockholders' equity (deficit):
4% Series A Preferred stock 5,700,000 5,700,000
Common stock 36,000 36,000
Capital in excess of par 341,000 341,000
Accumulated deficit (5,713,000) (5,618,000)
364,000 459,000
Treasury stock at cost (3,819,000) (3,813,000)
Total stockholders'
equity (deficit) (3,455,000) (3,354,000)
Total liabilities and
stockholders' equity (deficit) $ 10,095,000 $ 11,490,000
<PAGE>
FORM 10-Q
ENCORE MARKETING INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED FEBRUARY 28, 1997 AND NOVEMBER 30, 1995
1997 1996
(unaudited) (unaudited)
Revenues $ 21,817,000 $ 29,308,000
Costs and expenses:
Direct membership fulfillment 1,868,000 4,104,000
Advertising and promotion10,465,000 16,863,000
General and administrative
expenses 8,665,000 9,226,000
Total costs and expenses 20,998,000 30,193,000
Income (loss) from operations 819,000 (885,000)
Interest expense 367,000 292,000
Income (loss) before income taxes 452,000 (1,177,000)
Income tax expense - 200,000
Net income (loss) 452,000 (1,377,000)
Preferred dividend requirement 547,000 547,000
Net loss applicable
to common stock $ (95,000) $(1,924,000)
Net loss per share $ (.03) $ (.60)
Weighted average number of
shares outstanding 3,229,000 3,232,000
<PAGE>
FORM 10-Q
ENCORE MARKETING INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
1997 1996
(unaudited) (unaudited)
Revenues $21,817,000 $ 29,308,000
Costs and expenses:
Direct membership fulfillment 1,868,000 4,104,000
Advertising and promotion 10,465,000 16,863,000
General and administrative
expenses 8,665,000 9,226,000
Total costs and expenses 20,998,000 30,193,000
Income (loss) from operations 819,000 (885,000)
Interest expense 367,000 292,000
Income (loss) before income taxes 452,000 (1,177,000)
Income tax expense - 200,000
Net income (loss) 452,000 (1,377,000)
Preferred dividend requirement 547,000 547,000
Net loss applicable
to common stock $ (95,000) $(1,924,000)
Net (loss) income per share $ (.03) $ (.60)
Weighted average number of
shares outstanding 3,229,000 3,232,000
<PAGE>
FORM 10-Q
ENCORE MARKETING INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
1997 1996
(unaudited) (unaudited)
Cash Flows From Operating Activities:
Net income $ 452,000 $ (1,377,000)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 367,000 463,000
Changes in operating assets and liabilities:
Accounts Receivable 447,000 6,412,000
Supplies, deferred solicitations
and prepaid expenses 364,000 (307,000)
Accounts payable and
other current
liabilities (1,179,000) (1,838,000)
Reserve for cancellations 171,000 (3,905,000)
Other assets (11,000) 8,000
Net cash provided by (used in)
operating activities 641,000 (544,000)
Cash Flows From Investing Activities:
Purchases of property and
equipment (53,000) (74,000)
Decrease in restricted cash
equivalents -- 75,000
Net cash (used in) provided
by investing activities (53,000) 1,000
Cash Flows From Financing Activities:
Repayments under capital
lease obligations (132,000) (174,000)
Payments on notes payable (532,000) 5432,000)
Payments on notes payable
to related party -- (365,000)
Proceeds of loan from
related party 400,000 2,078,000
Decrease in other long-term
debt (31,000) (1,000)
Purchase of common stock (6,000) (138,000)
Preferred dividend paid (547,000) (547,000)
Net cash (used in)
provided by financing
activities (848,000) 310,000
Decrease in cash and
cash equivalents (260,000) (233,000)
Cash and cash equivalents,
beginning of period 632,000 445,000
Cash and cash equivalents,
end of period $ 372,000 $ 212,000
<PAGE>
FORM 10-Q
ENCORE MARKETING INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Cash and cash equivalents:
Restricted cash primarily represents amounts held in
interest-bearing accounts pursuant to arrangements with credit
card processors and are classified as current assets as they
represent security for amounts classified as current liabilities.
2. Earnings (loss) per share:
Earnings (loss) per share are based on the weighted
average shares outstanding during each period after giving
appropriate effect for preferred stock dividends. Fully diluted
earnings per share is not presented since the assumed conversion
of the Series A Preferred Stock after adjustment for preferred
dividends is immaterial.
3. Prior year reclassifications:
Certain fiscal 1996 amounts have been reclassified to
conform to current year presentations.
4. In September 1996, the Company closed its facility in
North Huntingdon, Pennsylvania. As a result, the Company has
included $162,000 of costs associated with the closing in general
and administrative expenses for the nine months ended
February 28, 1997.
<PAGE>
FORM 10-Q
ENCORE MARKETING INTERNATIONAL, INC. AND SUBSIDIARIES
For the Three and Nine Month Periods Ended February 28, 1997
PART I - Financial Information
Item 2. Management's discussion and analysis of financial
condition and results of operations.
Nine months ended February 28, 1997 (fiscal 1997) as compared to
the nine months ended February 29, 1996 (fiscal 1996).
Revenues during the first nine months of fiscal
1997 decreased $7,491,000 (25.6%) to $21,817,000 from $29,308,000
for the corresponding period in fiscal 1996. Renewal revenues
decreased by $2,954,000 (17.2%) to $14,249,000 for the first nine
months of fiscal 1997 from $17,203,000 during the first nine
months of fiscal 1996. This decrease was a result of a reduction
in the number of memberships up for renewal. In addition, a
change in the client mix has caused an overall reduction in
renewal rates. The Company is currently developing and testing
membership conservation programs in order to increase the
retention rate on renewals and new memberships. Revenues from new
member acquisitions decreased by $4,488,000 (43.8%) to $5,751,000
during the first nine months of fiscal 1997 from $10,239,000 for
the corresponding period of 1996. The decline was the result of
a decrease in mail solicitation and telemarketing. The Company
is revising and will continue testing new mail packages and
telemarketing scripts. The decrease in new member acquisitions
will result in a lower renewable membership base during the next
fiscal year resulting in a decrease in revenues from renewals.
Revenues from other sources decreased to $1,817,000 for the first
nine months of 1997 from $1,866,000 for the corresponding period
in 1996.
Direct membership fulfillment, which relates to
membership activity and includes the cost of directories,
membership cards, postage, printed materials, premiums and cash
rebates, decreased by $2,236,000 (54.5%) to $1,868,000 during the
first nine months of fiscal 1997 from $4,104,000 for the
corresponding period of the previous year. This decrease is
principally due to a decrease in cash rebates resulting from
changes to the Pet Care Savings Club and a reduction in purchases
of membership fulfillment material needed resulting from the
decrease in new member acquisitions.
Advertising and promotion, which are costs
incurred in acquiring members and includes solicitation postage,
printed materials, telemarketing, solicitation premiums and
commissions decreased by $6,398,000 (37.9%) to $10,465,000 during
the first nine months of fiscal 1997 from $16,863,000 during the
first nine months of fiscal 1996. This decrease is a result of a
decrease in new member acquisition marketing.
General and administrative expenses decreased by
$561,000 (6.1%) to $8,665,000 during the first nine months of
fiscal 1997 from $9,226,000 during the first nine months of
fiscal 1996. This decrease is a result of reductions in expenses
associated with new member acquisition marketing. General and
administrative expenses for the first nine months of fiscal year
1997 include $162,000 in costs associated with the closing of the
Company's facility in North Huntingdon, Pennsylvania.
Interest expense for the first nine months of
fiscal 1997 increased by $75,000 (25.7%) to $367,000 as compared
to $292,000 for the first nine months of 1996.
There was no income tax expense for the first
nine months of fiscal 1997 due to the availability of operating
loss carryforwards. Income tax expenses of $200,000 for the
first nine months of fiscal 1996 was the result of the settlement
of prior year income tax dispute.
As a result of the above, the Company had net
income of $452,000 for the first nine months of fiscal 1997 as
compared to a net loss of $1,377,000 for the first nine months of
fiscal 1996.
Three months ended February 28, 1997 (third quarter) as compared
to the three months ended February 29, 1996 (third quarter)
Revenues during the third quarter of fiscal 1997
decreased $1,558,000 (17.8%) to $7,174,000 from $8,732,000 for
the corresponding period in fiscal 1996. Renewal revenues
decreased by $1,156,000 (20.1%) to $4,585,000 for the third
quarter of fiscal 1997 from $5,741,000 during the first nine
months of fiscal 1996. This decrease is a result of a reduction
in the number of memberships up for renewal. In addition, a
change in client mix has caused an overall reduction in renewal
rates. The Company is currently developing and testing
membership conservation programs in order to increase the
retention rate on renewals and new memberships. Revenues from
new member acquisitions decreased by $363,000 (14.9%) to
$2,071,000 during the first nine months of fiscal 1997 from
$2,434,000 for the corresponding period of 1996. The decline was
the result of a decrease in mail solicitation and telemarketing.
The Company is revising and will continue testing new mail
packages and telemarketing scripts. The decrease in new member
acquisitions will result in a lower renewable membership during
the next fiscal year resulting in a decrease in revenues from
renewals. Revenues from other sources decreased to $518,000 for
the third quarter of 1997 from $557,000 for the corresponding
period in 1996.
Direct membership fulfillment, which relates to
membership activity and includes the cost of directories,
membership cards, postage, printed materials, premiums and cash
rebates, decreased by $869,000 (64.1%) to $487,000 during the
third quarter of fiscal 1997 from $1,356,000 for the
corresponding period of the previous year. This decrease is
principally due to a decrease in cash rebates resulting from
changes to the Pet Care Savings Club and reduced membership
fulfillment material needed resulting from the decrease in new
member acquisitions.
Advertising and promotion, which are costs
incurred in acquiring members and includes solicitation postage,
printed materials, telemarketing, solicitation premiums and
commissions decreased by $2,673,000 (44.4%) to $3,351,000 during
the second quarter of fiscal 1997 from $6,024,000 during the
third quarter of fiscal 1996. This decrease is a result of a
decrease in new member acquisition marketing.
General and administrative expenses decreased by
$153,000 (5.2%) to $2,780,000 during the third quarter of fiscal
1997 from $2,933,000 during the third quarter of fiscal 1996.
This decrease is a result of reductions in expenses associated
with new member acquisition marketing.
Interest expense for the third quarter of fiscal
1997 increased by $20,000 (20.4%) to $118,000 as compared to
$98,000 for the third quarter of 1996.
There was no income tax expense for the third
quarter of fiscal 1997 due to the availability of operating loss
carryforwards. Income tax expense of $200,000 for the third
quarter of fiscal 1996 was the result of the settlement of a
prior year income tax dispute.
As a result of the above, the Company had net
income of $438,000 for the third quarter of fiscal 1997 as
compared to a net loss of $1,879,000 for the third quarter of
fiscal 1996.
Liquidity and Capital Resources
For the nine months ended February 28, 1997 cash
flow provided by operating activities was $641,000. Cash of
$53,000 was used in investing activities and $848,000 was used in
financing activities for the first nine months of fiscal 1997.
As a result, at February 28, 1997, cash and cash equivalents
decreased by $260,000 to $372,000 as compared to $632,000 at May
31, 1996. The Company has approximately $2,200,000 due on its
Senior Subordinated Secured Notes in November 1997 and is
exploring options for how these notes will be paid or
restructured. In January 1997, an affiliate advanced the Company
$120,000 in rent and management fees of which $100,000 remains
prepaid at February 28, 1997. The affiliate also loaned the
Company $400,000 in February 1997, which bears interest at 9% and
is due together with accrued interest in February 1999.
The Company announced in November 1996 its
intention to make open market purchases of its common and
preferred stock at current price levels. The Company currently
anticipates purchasing up to 100,000 shares of each, although the
actual number of shares purchased will be dependent upon future
market conditions.
<PAGE>
FORM 10-Q
ENCORE MARKETING INTERNATIONAL, INC. AND SUBSIDIARIES
For the Three and Nine Month Periods Ended February 28, 1997 and
February 29, 1996
PART II - Other Information
Item 6. Exhibits and Other Reports on Form 8-K:
(a) Exhibits
none
(b) Reports on Form 8-K
none
<PAGE>
FORM 10-Q
ENCORE MARKETING INTERNATIONAL, INC. AND SUBSIDIARIES
For the Three and Nine Month Period Ended February 28, 1997 and
February 29, 1996
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.
ENCORE MARKETING INTERNATIONAL, INC.
AND SUBSIDIARIES
(Registrant)
April 14, 1997 By: /S/
Date Stanley Plotnick
Chief Executive Officer
By: /S/
Paula Jones
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 372
<SECURITIES> 0
<RECEIVABLES> 6887
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9447
<PP&E> 3917
<DEPRECIATION> 3435
<TOTAL-ASSETS> 10095
<CURRENT-LIABILITIES> 10847
<BONDS> 2703
0
5700
<COMMON> 36
<OTHER-SE> (9191)
<TOTAL-LIABILITY-AND-EQUITY> 10095
<SALES> 0
<TOTAL-REVENUES> 21817
<CGS> 0
<TOTAL-COSTS> 12333
<OTHER-EXPENSES> 8665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 367
<INCOME-PRETAX> 452
<INCOME-TAX> 0
<INCOME-CONTINUING> 452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 452
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
