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 November 30, 1996
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 NASD Bulletin Board
4% Series A Convertible NASD Bulletin Board
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 November 30, 1996, there were 3,231,000 shares of Common
Stock $.01 par value, outstanding.
Number of pages in the report: 16 <PAGE>
ENCORE MARKETING INTERNATIONAL, INC. AND SUBSIDIARIES
For the three and six months ended November 30, 1996
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 six months ended November 30,
1996, 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>
ENCORE MARKETING INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30 May 31
1996 1996
ASSETS:
(unaudited)
Current assets:
Cash and cash equivalents $ 56,000 $ 632,000
Cash and cash equivalents,
restricted 765,000 765,000
Accounts receivable
Membership 5,852,000 6,984,000
Other 350,000 380,000
Supplies and deferred
solicitations 1,068,000 1,633,000
Prepaid expenses 135,000 154,000
Total current assets 8,226,000 10,548,000
Property and equipment:
Furniture and equipment 2,419,000 3,750,000
Leasehold improveme 130,000 225,000
Furniture and equipment
under capital leases 1,352,000 2,028,000
3,901,000 6,003,000
Less accumulated depreciation
and amortization (3,375,000) (5,245,000)
Net property and equipment
526,000 758,000
Other assets:
Deferred financing cost, net of amortization
39,000 59,000
Other 139,000 125,000
Total other assets 178,000 184,000
Total assets $ 8,930,000 $ 11,490,000
<PAGE>
ENCORE MARKETING INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30 May 31
1996 1996
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current Liabilities:
Current portion of
Capital lease obligations $ 164,000 $ 171,000
Notes payable 2,906,000 805,000
Accounts payable 2,956,000 3,600,000
Other current liabilities 1,566,000 2,281,000
Reserve for cancellations 2,683,000 3,088,000
Total current liabilities 10,275,000 9,945,000
Long Term Debt, Net of Current Portion:
Capital lease obligations 265,000 338,000
Notes payable 2,080,000 4,530,000
Other 16,000 31,000
2,361,000 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 (5,970,000) (5,618,000)
107,000 459,000
Treasury stock at cost (3,813,000) (3,813,000)
Total stockholders'
equity (deficit) (3,706,000) (3,354,000)
Total liabilities and
stockholders' equity $ 8,930,000 $ 11,490,000
<PAGE>
ENCORE MARKETING INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED NOVEMBER 30, 1996 AND NOVEMBER 30, 1995
1996 1995
(unaudited) (unaudited)
Revenues $ 14,643,000 $ 20,576,000
Costs and expenses:
Direct membership fulfillment 1,381,000 2,748,000
Advertising and promotion 7,114,000 10,839,000
General and administrative
expenses 5,885,000 6,293,000
Total costs and expenses 14,380,000 19,880,000
Income from operations 263,000 696,000
Interest expense 249,000 194,000
Income before income taxes 14,000 502,000
Income tax expense - -
Net income 14,000 502,000
Preferred dividend requirement 365,000 365,000
Net (loss) income applicable
to common stock $ (351,000) $ 137,000
Net (loss) income per share $ (.11) $ .04
Weighted average number of
shares outstanding 3,231,000 3,232,000
<PAGE>
ENCORE MARKETING INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 1996 AND NOVEMBER 30, 1995
1996 1995
(unaudited) (unaudited)
Revenues $ 6,674,000 $ 10,014,000
Costs and expenses:
Direct membership fulfillment 449,000 1,274,000
Advertising and promotion 3,540,000 5,512,000
General and administrative
expenses 2,823,000 2,849,000
Total costs and expenses 6,812,000 9,635,000
Income from operations (138,000) 379,000
Interest expense 124,000 94,000
(Loss) income before income taxes (262,000) 285,000
Income tax expense - -
Net (loss) income (262,000) 285,000
Preferred dividend requirement 182,000 183,000
Net (loss) income applicable
to common stock $ (444,000) $ 102,000
Net (loss) income per share $ (.14) $ .03
Weighted average number of
shares outstanding 3,231,000 3,232,000
<PAGE>
ENCORE MARKETING INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED NOVEMBER 30, 1996 AND NOVEMBER 30, 1995
1996 1995
(unaudited) (unaudited)
Cash Flows From Operating Activities:
Net income $ 14,000 $ 502,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 297,000 318,000
Changes in operating assets and liabilities:
Decrease in accounts
receivable 1,162,000 3,819,000
Decrease (increase) in
supplies, deferred
solicitations and prepaid
expenses 584,000 (821,000)
Decrease in accounts
payable and other current
liabilities (1,359,000) (167,000)
Decrease in reserve for
cancellations (405,000) (2,438,000)
(Increase) decrease in
other assets (14,000) 3,000
Net cash provided by
operating activities 279,000 1,216,000
Cash Flows From Investing Activities:
Purchases of property and
equipment (37,000) (36,000)
Decrease in restricted cash
equivalents -- 75,000
Net cash used in investing
activities (37,000) 39,000
Cash Flows From Financing Activities:
Repayments under capital
lease obligations (89,000) (115,000)
Payments on notes payable (349,000) (372,000)
Payments on notes payable
to related party -- (237,000)
Proceeds of loan from
related party -- 600,000
Decrease in other long-term
debt (15,000) (82,000)
Purchase of common stock -- (1,000)
Preferred dividend paid (365,000) (365,000)
Net cash used in financing
activities (818,000) (572,000)
(Decrease) increase in cash and
cash equivalents (576,000) 683,000
Cash and cash equivalents,
Cash and cash equivalents,
end of period $ 56,000 $ 1,128,000
<PAGE>
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.
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 antidilutive.
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 $164,000 of costs
associated with this in general and administrative expenses for
the six months ended November 30, 1996.
<PAGE>
ENCORE MARKETING INTERNATIONAL, INC. AND SUBSIDIARIES
For the Three and Six Month Period Ended November 30, 1996
PART I - Financial Information
Item 2. Management's discussion and analysis of financial
condition and results of operations.
Six months ended November 30, 1996 (fiscal 1997) as compared to
the six months ended November 30, 1995 (fiscal 1996)
Revenues during the first six months of fiscal 1997
decreased $5,933,000 (28.8%) to $14,643,000 from $20,576,000 for
the corresponding period in fiscal 1996. Renewal revenues
decreased by $1,798,000 (15.7%) to $9,664,000 for the first six
months of fiscal 1997 from $11,462,000 during the first six
months of fiscal 1996. This decrease is a result of a reduction
in the overall percentage of renewing members associated with
financial institutions and a corresponding increase in members
associated with retail clients. This change in client mix has
caused an overall reduction in renewal rates since members
associated with retail clients tend to renew at a lower rate than
those associated with financial institutions. The Company is
currently developing and testing membership conservation programs
in order to increase retention on renewals and new memberships.
Revenues from new member acquisitions decreased by $4,125,000
(52.9%) to $3,680,000 during the first six months of fiscal 1997
from $7,805,000 for the corresponding period of 1996. The
decline was a result of a decrease in response rates for mail
solicitations, unsatisfactory results of new mail packages and a
decrease in telemarketing. The Company is revising and will
continue testing new packages. Revenues from other sources
decreased to $1,299,000 for the first six months of 1997 from
$1,309,000 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 $1,367,000 (49.7%) to $1,381,000 during the
first six months of fiscal 1997 from $2,748,000 for the
corresponding period of the previous year. This decrease is
principally due to a decrease in cash rebates and reduced
membership fulfillment material.
Advertising and promotion, which are costs incurred in
acquiring members and includes solicitation postage, printed
materials, telemarketing, solicitation premiums and commissions
decreased by $3,725,000 (34.4%) to $7,114,000 during the first
six months of fiscal 1997 from $10,839,000 during the first six
months of fiscal 1996. This decrease is a result of a decrease
in new member acquisition programs.
General and administrative expenses decreased by
$408,000 (6.5%) to $5,885,000 during the first six months of
fiscal 1997 from $6,293,000 during the first six months of fiscal
1996. As a percentage of revenues, general and administrative
expenses were 40.2% versus 30.6% during the first six months of
fiscal 1997 and 1996, respectively. General and administrative
expenses for the first six months of fiscal year 1997 include
$164,000 in costs associated with the closing of the Company's
facility in North Huntingdon, Pennsylvania.
Interest expense for the first six months of fiscal
1997 increased by $55,000 (28.4%) to $249,000 as compared to
$194,000 for the first six months of 1996.
As a result of the above, the Company had net income of
$14,000 for the first six months of fiscal 1997 as compared to
net income of $502,000 for the first six months of fiscal 1996.
Three months ended November 30, 1996 (second quarter) as compared
to the three months ended November 30, 1995 (second quarter)
Revenues during the second quarter of fiscal 1997
decreased $3,340,000 (33.4%) to $6,674,000 from $10,014,000 for
the corresponding period in fiscal 1996. Renewal revenues
decreased by $1,644,000 (28.1%) to $4,212,000 for the second
quarter of fiscal 1997 from $5,856,000 during the first six
months of fiscal 1996. The decrease is a result of a reduction
in the overall percentage of renewing members associated with
financial institutions and a corresponding increase in members
associated with retail clients. This change in client mix has
caused an overall reduction in renewal rates since members
associated with retail clients tend to renew at a lower rate than
those associated with financial institutions. The Company is
currently developing and testing membership conservation programs
in order to increase retention on renewals and new memberships.
Revenues from new member acquisitions decreased by $1,566,000
(44.9%) to $1,921,000 during the first six months of fiscal 1997
from $3,487,000 for the corresponding period of 1996. The
decline was a result of a decrease in response rates for mail
solicitations, unsatisfactory results of new mail packages and a
decrease in telemarketing. The Company is revising and will
continue testing new packages. Revenues from other sources
decreased to $541,000 for the second quarter of 1997 from
$671,000 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 $825,000 (64.8%) to $449,000 during the
second quarter of fiscal 1997 from $1,274,000 for the
corresponding period of the previous year. This decrease is
principally due to a decrease in cash rebates and reduced
membership fulfillment material.
Advertising and promotion, which are costs incurred in
acquiring members and includes solicitation postage, printed
materials, telemarketing, solicitation premiums and commissions
decreased by $1,972,000 (35.8%) to $3,540,000 during the second
quarter of fiscal 1997 from $5,512,000 during the second quarter
of fiscal 1996. This decrease is a result of a decrease in new
member acquisition programs.
General and administrative expenses decreased by
$26,000 (0.9%) to $2,823,000 during the second quarter of fiscal
1997 from $2,849,000 during the second quarter of fiscal 1996.
As a percentage of revenues, general and administrative expenses
were 42.3% versus 28.5% during the second quarter of fiscal 1997
and 1996, respectively.
Interest expense for the second quarter of fiscal 1997
increased by $30,000 (31.9%) to $124,000 as compared to $94,000
for the second quarter of 1996.
As a result of the above, the Company had a net loss of
$262,000 for the second quarter of fiscal 1997 as compared to net
income of $285,000 for the second quarter of fiscal 1996.
Liquidity and Capital Resources
For the six months ended November 30, 1996 cash flow
provided by operating activities was $279,000. Cash of $37,000
was used in investing activities and $818,000 was used in
financing activities for the first six months of fiscal 1997. As
a result, at November 30, 1996, cash and cash equivalents
decreased by $576,000 to $56,000 as compared to $632,000 at May
31, 1996. The Company has approximately $2,200,000 due to 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.
The Company recently announced its intention to make
open market purchases of its common and preferred stock at recent
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>
ENCORE MARKETING INTERNATIONAL, INC. AND SUBSIDIARIES
For the Three and Six Month Period Ended November 30, 1996
and November 30, 1995
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>
ENCORE MARKETING INTERNATIONAL, INC. AND SUBSIDIARIES
For the Three and Six Month Period Ended November 30, 1996
and November 30, 1995
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)
January 14, 1997 By: /S/
Date Stanley Plotnick
President
By: /S/
Paula Jones
Controller
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