<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
/X/ For quarterly period ended September 30, 2000
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number 0-25377
NURESCELL INC.
A Nevada Corporation IRS Employer Identification No.:
33-0805583
Principal Executive Offices:
1400 Bristol Street North, Suite 240
Newport Beach, California 92660
(949) 752-0071
-------------------
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 / /
Number of shares of Common Stock outstanding at September 30, 2000: 15,683,288
Transitional Small Business Disclosure Format (check one): Yes /X/ No / /
1
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
NURESCELL INC.
(A Company in the Development Stage)
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, March 31,
2000 2000
Unaudited Audited
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 11,950 $ 26,945
Accounts receivable 8,700 8,700
Inventory 55,756 25,078
Other prepaid expenses 14,810 13,732
------------ ------------
TOTAL CURRENT ASSETS 91,216 74,455
------------ ------------
PROPERTY AND EQUIPMENT net of accumulated
depreciation and amortization of $21,545 and $14,021 69,197 48,937
OTHER ASSETS
Deferred financing cost 60,038 84,999
Deposits 3,679 3,679
Intangibles 63,837 30,005
------------ ------------
TOTAL OTHER ASSETS 127,554 118,683
------------ ------------
TOTAL $ 287,967 $ 242,075
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable $ 139,063 $ 139,289
Loan from officer 111,791 79,367
Accrued expenses 129,311 120,092
------------ ------------
TOTAL CURRENT LIABILITIES 380,165 338,748
NOTES PAYABLE, net of unamortized discount of $321,467
and $236,310 448,533 533,690
------------ ------------
TOTAL LIABILITIES 828,698 872,438
SHAREHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $.001 par value; authorized - 1,000,000 shares;
issued and outstanding - none - -
Common stock, $.0001 par value; authorized - 50,000,000 shares;
issued and outstanding - 15,683,288 shares at September 30, 2000
and 15,191,788 shares at March 31, 2000 1,569 1,519
Additional paid-in capital 4,950,873 4,028,739
Receivable from stock option exercise (25,000) -
Accumulated deficit (5,468,173) (4,660,621)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) (540,731) (630,363)
------------ ------------
TOTAL $ 287,967 $ 242,075
============ ============
See accompanying Notes to Financial Statements
</TABLE>
2
<PAGE>
<TABLE>
NURESCELL INC.
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Cumulative Cumulative
For the period For the period
For the three For the three For the six May 12, 1998 May 12, 1998
months ended months ended months ended (Date of Inception) (Date of Inception)
September 30, September 30, September 30, to September 30, to September 30,
2000 1999 2000 1999 2000
Unaudited Unaudited Unaudited Unaudited Unaudited
------------- ------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
SALES $ - $ - $ - $ - $ 8,700
COST OF SALES - - - - 21,377
------------- ------------- ------------- ------------- -------------
GROSS LOSS - - (12,677)
OPERATING EXPENSES
Research and development - - 66,632
General and administrative 374,299 460,445 900,542 1,512,362 5,450,520
Depreciation 3,762 1,079 7,524 9,085 22,767
------------- ------------- ------------- ------------- -------------
TOTAL EXPENSES 378,061 461,524 908,066 1,521,447 5,539,919
------------- ------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (378,061) (461,524) (908,066) (1,521,447) (5,552,596)
OTHER INCOME (EXPENSE)
Interest income (expense) (78,542) (179,486) 6,805 (188,799)
Loss on abandonment of software - - (6,778)
Gain on conversion of debt 280,000 280,000 - 280,000
------------- ------------- ------------- ------------- -------------
TOTAL OTHER INCOME (EXPENSE) 201,458 - 100,514 6,805 84,423
------------- ------------- ------------- ------------- ------------
NET LOSS $ (176,603) $ (461,524) $ (807,552) $ (1,514,642) $ (5,468,173)
============= ============= ============= ============= =============
BASIC AND DILUTED LOSS/SHARE $ (0.01) $ (0.04) $ (0.05) $ (0.12) $ (0.42)
============= ============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 15,525,793 13,234,000 15,412,541 12,322,706 13,085,928
============= ============= ============= ============= =============
See accompanying Notes to Financial Statements
</TABLE>
3
<PAGE>
<TABLE>
NURESCELL INC.
(A Company in the Development Stage)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM MAY 12, 1998 (INCEPTION DATE) TO SEPTEMBER 30, 2000
UNAUDITED
<CAPTION>
COMMON STOCK ADDITIONAL STOCK
--------------------------- PAID IN OPTION ACCUMULATED
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock
Cash - Founding Shareholders
(March 1998 at $.0001) 2,100,000 $ 210 $ 1,890 $ - $ - $ 2,100
Cash - Founding Shareholders
(June 1998 at $.0001) 400,000 40 360 400
Purchase of Technology
(June 1998 at $.0001) 10,000,000 1,000 (1,000) -
Cash - $1.00 per share
(August 1998) 498,000 50 497,950 498,000
Cash - $5.00 per share,
net of issuance cost
(September 1998) 19,800 2 87,720 87,722
Cash - $5.00 per share,
net of issuance cost
(October 1998) 5,200 1 23,038 23,039
Cash - $5.00 per share,
net of issuance cost
(November 1998) 1,500 6,645 6,645
Cash - $5.00 per share,
net of issuance cost
(February 1999) 12,000 1 53,163 53,164
Cash - $5.00 per share,
net of issuance cost
(March 1999) 40,500 4 179,426 179,430
Fair value of options 30,000 30,000
Net loss, as restated for March 31, 1999 (674,526) (674,526)
------------ ------------ ------------ ------------ ------------ ------------
Balance, March 31, 1999 13,077,000 1,308 879,192 - (674,526) 205,974
Issuance of common stock
Cash $100 and investment bankings
services (May 1999 at $2.50) 30,000 3 74,997 75,000
Consulting services
(October 1999 at $1.17) 8,000 1 9,359 9,360
Consulting services
(December 1999 at $1.10) 134,000 13 147,597 147,610
Consulting services
(January 2000 at $.98) 100,000 10 98,240 98,250
Exercise of stock options
(October 1999 at $.50) 60,000 6 29,994 30,000
Exercise of stock options
(October 1999 at $.50) 60,000 6 29,994 30,000
Exercise of stock options
(January 2000 at $1.00) 15,000 2 14,999 15,001
Exercise of stock options
(March 2000 at $2.00) 10,000 1 19,999 20,000
To a director (December 1999 at $1.78) 300,000 30 533,970 534,000
To employees (December 1999 at $2.25) 20,000 2 44,998 45,000
To employee (December 1999 at $1.88) 100,000 10 187,490 187,500
Conversion of debt to capital
(January 2000 at $1.17) 524,226 52 614,275 614,327
Award to directors and officers
(January 2000 at $1.17) 734,562 73 860,742 860,815
Cash (April 1999 at $5.00) 19,000 2 94,998 95,000
Fair value of options and warrants 387,895 387,895
Net loss (3,986,095) (3,986,095)
------------ ------------ ------------ ------------ ------------ ------------
Balance, March 31, 2000 15,191,788 $ 1,519 $ 4,028,739 $(4,660,621) $ (630,363)
Issuance of Common Stock
Exercise of Stock Options
(April 2000 at $1.00) 7,500 $ 1 $ 7,499 $ 7,500
Exercise of Stock Options
(June 2000 at $ .25) 100,000 10 24,990 25,000
Receivable from stock option exercise (25,000) (25,000)
Conversion of Debt to Capital
(August 3 at $1.65 per share) 250,000 25 132,475 132,500
To an employee (August 2000 at $.68) 100,000 10 67,990 68,000
To Dutchess (July 2000 at $.90) 34,000 4 30,688 30,692
Fair Value of Options and Warrants 362,676 362,676
Nurescell AG 295,816 295,816
Net Loss (807,552) (807,552)
------------ ------------ ------------ ------------ ------------ -----------
Balance, September 30, 2000 15,683,288 $ 1,569 $ 4,950,873 $ (25,000) $(5,468,173) $ (540,731)
============ ============ ============ ============ ============ ============
See accompanying Notes to Financial Statements
4
</TABLE>
<PAGE>
<TABLE>
NURESCELL INC.
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Cumulative
For the period
For the six For the six May 12, 1998
months ended months ended (Date of Inception)
September 30, 2000 September 30, 1999 to September 30, 2000
Unaudited Unaudited Unaudited
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (807,552) $ (447,741) $ (5,468,173)
Adjustments:
Depreciation 6,302 3,204 21,545
Amortization of discount on notes payable &
deferred financing cost 156,441 - 190,131
Loss on abandonment of computer software - - 6,778
Issuance of stock for services 98,692 - 2,056,127
Issuance of stock for conversion of debt to capital 132,500 - 746,827
Fair value of options and warrants 362,676 - 780,571
(Increase) decrease in:
Advances to employees - 12,075 -
Accounts receivable - - (8,700)
Notes Receivable-Officers 54,673
Inventory (30,678) - (55,756)
Other prepaid expenses (1,078) - (14,810)
Due from officer - 12,370 -
Other receivables - 3,761 -
Subscriptions Receivable 25,000 -
Increase (decrease) in:
Accounts payable (226) 53,643 139,063
Accrued expenses 9,219 71,640 129,311
------------- ------------- -------------
Net Cash Flows Used by Operating Activities (73,704) (211,375) (1,477,086)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (26,565) (3,628) (97,525)
Deposits - - (3,679)
Intangibles (33,832) - (63,837)
Nurescell Ag (295,816) - (295,816)
------------- ------------- -------------
Net Cash Flows Used by Investing Activities (356,213) (3,628) (460,857)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 7,500 91,000 1,048,101
Proceeds from issuance of notes 375,000 - 875,000
Proceeds from officer loan 32,422 - 111,791
Debt issuance costs - - (84,999)
------------- ------------- -------------
Net Cash Flows Provided by Financing Activities 414,922 91,000 1,949,893
------------- ------------- -------------
Net increase (decrease) in cash (14,995) (124,003) 11,950
Cash at beginning of period 26,945 125,421 -
------------- ------------- -------------
Cash at end of period $ 11,950 $ 1,418 $ 11,950
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF NON-CASH
FINANCING ACTIVITIES
Issuance common stock for services $ 98,692 $ 2,056,127
Issuance of common stock for conversion of
debt to equity 132,500 746,827
See accompanying Notes to Financial Statements
5
</TABLE>
<PAGE>
NURESCELL INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: MANAGEMENT REPRESENTATION
The financial statements included herein have been prepared by Nurescell Inc.
(the "Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. However,
the Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that the financial statements be read
in conjunction with the audited financial statements and notes for the fiscal
year ended March 31, 2000 included in the Company's annual report on Form
10-KSB. The interim results are not necessarily indicative of the results for
the full year.
NOTE 2: GOING CONCERN
The Company has accumulated net losses of $5,468,173 and negative working
capital of $288,949 as of September 30, 2000. The Company's capacity to operate
as a going-concern is dependent on its ability to obtain adequate financing to
fund its operations until the Company is able to generate commercial revenues
sufficient to fund ongoing operations. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
EARNINGS PER SHARE: Basic Earnings per Share ("EPS") is calculated by dividing
income available to common stockholders (the "numerator") by the weighted
average number of common shares outstanding (the "denominator") during the
period. The computation of diluted EPS is similar to the computation of basic
EPS except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the dilutive potential common
shares (that is, securities such as options, warrants, convertible securities,
or contingent stock agreements) had been issued. In addition, in computing the
dilutive effect of convertible securities, the numerator is adjusted to add back
(a) any convertible preferred dividends and (b) the after-tax amount of interest
recognized in the period associated with any convertible debt. The computation
of diluted EPS shall not assume conversion, exercise, or contingent issuance of
securities that would have an antidilutive effect on EPS.
6
<PAGE>
OTHER ASSETS: Other assets consist of deposits, intangibles, and deferred
financing costs on notes payable (See Note 7). Intangibles include patent
application and associated legal costs. Upon commencement of operations, all
costs associated with obtaining patents will be amortized on a straight-line
basis over the remaining patent lives. The Company will evaluate the
recoverability of intangibles on an annual basis by comparing the estimated net
realizable value of the intangibles to their carrying value.
FOREIGN CURRENCY TRANSLATION: The financial statements of the Company's share of
the foreign company have been translated to US dollars at current exchange
rates. Gains or losses from foreign currency transactions denominated in a
currency other than the Company's are included in the results of operations.
NOTE 4: INVENTORIES
Inventories consisted of the following at September 30, 2000:
Raw material $ 34,697
Finished goods 21,059
--------------
$ 55,756
==============
NOTE 5: LOAN FROM OFFICER
Loan from officer at September 30, 2000 consisted of short-term cash advance
from Dr. Adrian Joseph, the Chief Executive Officer, payable on demand, and
bearing interest at 10% per annum. Interest accrued on this loan for the three
months ended September 30, 2000 was $2,825.
NOTE 6: CONVERTIBLE NOTES PAYABLE
On December 15, 1999 and February 8, 2000, respectively, the Company signed
convertible promissory notes to Triton Private Equities Fund, L.P. ("Triton"),
each with a face value $385,000 and bearing interest at 8% per annum ("December
note" and "February note"). Interest for the December and February notes are due
quarterly beginning March 31, 2000 and September 30, 2000, respectively. For
both notes, the Company recorded an original issue discount of $270,000, legal
fees in the amount of $28,500, and finders' fee in the amount of $50,000.
Additionally, a refundable prepaid fee of $25,000 was withheld by Triton to
reserve an equity credit line, which the Company has decided not to pursue. As
of September 30, 2000, Triton still held the $25,000.
The December note has a warrant feature for 25,000 shares of Company Common
Stock, with a three-year expiration date. The February note has a warrant
feature for 75,000 shares of the Company Common Stock, also with a three-year
expiration date. Accounting Principles Board Opinion No. 16 requires that
separate amounts attributable to the debt and the purchase warrant be computed
and accounting recognition be given to each component. At June 30, 2000 the
Company recorded an additional debt discount of $155,726 related to the value of
the warrants which will be amortized over the life of the notes. The warrants
were valued at fair value at the grant date using the Black-Scholes pricing
model. The warrants of December and February notes can be converted into Common
Stock for $ 2.25 and $4 per share, respectively.
The discount and other expenses related to the issuance of convertible
promissory notes are being amortized over the two-year life of the December note
and over the 22-month life of the February note. The unamortized debt discount
at September 30, 2000 was $321,467.
7
<PAGE>
Interest on the notes can be paid in shares of the Company's Common Stock at the
discretion of the Company, as follows: the dollar amount of the interest to be
paid divided by the average of the closing bid prices for the Common Stock for
the ten (10) trading days prior to the due date of such interest payment
multiplied by ninety percent (90).
The holder of the convertible promissory note can convert it to the Company's
Common Stock at its option, any time commencing the earlier of (i) the date on
which the Registration Statement is declared effective by the SEC; or (ii) the
date which is one hundred twenty days after the date of the note. The holder is
entitled to convert all or a portion of the original principal face amount of
this note into shares of common stock at a conversion price for each share of
common stock equal to the lessor of (a) one hundred twenty-five percent (125%)
of the closing price of the Company Common Stock at the date of the note or (b)
the average of the three lowest bid prices of the Company Common Stock for
twenty (20) trading days prior to the conversion date - at a price per share per
the following sliding formula:
date of note to 120 days = 105%
121 days to 150 days = 103%
151 days to 180 days = 100%
181 days to 210 days = 97%
more than 210 days = 95%
NOTE 7: NOTES PAYABLE
The Company has entered into an agreement with a major shareholder to obtain
$412,500 in 2 year notes, interest payable semi-annually, with a 10% front-end
discount. As of June 30, 2000, the Company has received a total of $375,000, net
of the $37,500 debt discount, which will be amortized over the two-year life of
the notes beginning in July, 2000. These notes were converted into 250,000
shares of the Company's Common Stock on August 3, 2000 and the debt discount of
$37,500 was fully amortized in the current period.
NOTE 8: SHAREHOLDERS' EQUITY (DEFICIENCY)
In April 2000, the Company entered into a public relations agreement with
International Media Solutions, Inc. Under that agreement, International Media
Solutions, Inc. is entitled to options to acquire 100,000 shares of Common Stock
at $.25 per share on May 1, 2000 and options to acquire 50,000 shares of Common
Stock at $2.00 per share on November 1, 2000.
Should the average bid price of the Common Stock 5 days prior to the execution
date be above $5 per share, said options shall be executed at a price of $3.00.
Should the average bid price of the Common Stock 5 days prior to the execution
date be above $7 per share, said options shall be executed at a price of $4. The
Company has agreed to allow International Media Solutions, Inc. to forward the
funds for the purchase of Common Stock as the shares cross into the market. The
related receivable is reflected as an offset to shareholders' deficiency until
the cash is collected. During the three months ended June 30, 2000, the Company
recorded $181,000 of public relations expense relating to exercisable stock
options granted. No Common Stock was issued and no expense was recorded for the
three months ended September 30, 2000.
8
<PAGE>
On August 17, 2000, the Company entered into an agreement to form Nurescell AG,
(AG) an entity formed under the laws of the Federal Republic of Germany, with an
unrelated third party, Advance Technology Industries Inc.(ATI). The Company has
a 51% interest in AG. AG has concurrently entered into an exclusive Licensing
Agreement for technology developed by Nurescell Inc. (Technology) for the
purpose of commercialization and marketing of said Technology in Europe, the
British Isles and countries of the former Soviet Union. As additional
consideration for entering into the License Agreement, AG, with the assistance
of ATI shall exercise its best efforts in good faith to raise as investment
capital the sum of Twenty Million Deutsche Marks (DM20,000,000), equivalent to
$9,375,000 US Dollars on the date of the agreement. The Company has recorded the
Company's share of the expense incurred by Nurescell AG of approximately $46,000
in these financial statements. All significant intercompany accounts and
transactions have been eliminated in consolidation. Because of activity that is
limited and immaterial to these financial statements, no minority interest has
been reflected.
During the three months ended June 30, 2000, the Company granted Robert Shaw, an
employee of the Company, options to purchase 45,000 shares of the Company's
common stock at $1.00 per share in exchange for services rendered to the
Company. In accordance with APB 25, no expense was recorded on the books for
these services. Robert Shaw resigned June 10, 2000 and no options were issued
for the three months ended September 30, 2000
Options and warrants to purchase 1,035,500 and 540,000 shares of the Company's
Common Stock were outstanding at September 30, 2000 and September 30, 1999,
respectively. Options and warrants outstanding were not included in the
computation of diluted loss per common share because the effect would be
antidilutive.
PRIVATE PLACEMENT MEMORANDUM: In May 2000, the Company prepared a Confidential
Private Placement Memorandum for the sale of between 1,000,000 and 2,500,000
units, each unit consisting of one share of .0001 par value Common Stock of the
Company and one warrant to purchase one share of Common Stock at a price of $4
per share until two years after the completion of the offering. The Company has
withdrawn the offering and is examining its alternatives for future financing.
NOTE 9: RELATED PARTY TRANSACTIONS
The Company has received an unsecured loan of $111,791 from one of its officers
(See Note 5).
The Company has also entered into consulting contracts with certain directors as
a means of inducing the directors to devote additional time and effort to the
Company over and above the time normally expected of a director. These contracts
provide for payments of $2,000 per month to each director under contract, have
no stated termination date but are cancelable by either party on 30 days written
notice. Amounts paid by the Company under these contracts were approximately
$8,000 during the three months ended September 30, 2000. Amounts accrued to
these directors for their services for the three months ended September 30, 2000
are $7,000.
NOTE 10: LEGAL PROCEEDINGS
Biltmore Advisors, LLC v Nurescell Inc. The suit claims breach of an oral
contract and seeks specific performance or damages estimated to be approximately
$600,000. The Company has decided to vigorously defend this matter. Although the
case is at the beginning of the discovery process, there has been an inquiry by
counsel for the plaintiff to enter into settlement negotiations for purposes of
resolving the issue. The management of the Company believes that the suit is
without merit, but has agreed to issue 50,000 of the Company's common stock to
settle the matter.
Dutchess Advisors, Ltd. v Nurescell Inc. The Company gave sixty days notice of
its termination of its relationship with Dutchess Advisors, Ltd. However,
Dutchess raised certain issues regarding compliance with the conditions of the
agreement. To settle the matter, the Company issued to Dutchess 34,000 shares of
the Company's Common Stock which were valued at fair market value of $30,692 on
the settlement date of July 24, 2000.
9
<PAGE>
PLAN OF OPERATION
GENERAL. Nurescell Inc. (the "Company" or "Registrant") is a development stage
company with operations to date principally consisting of research, development
and testing for its proprietary radiation shielding technology (the "Nurescell
Technology"). The Company is presently focused on independent third party
validation for the performance of its product, the obtaining of patents for its
technology, the establishment of manufacturing procedures and processes, and the
introduction of its product to the nuclear industry. From inception to September
30, 2000, the Company has obtained approximately $945,000 in financing through
the sale of equity securities through two private offerings, approximately
$95,000 through the exercise of stock options, $396,000 through the issuance of
convertible promissory notes, and $528,815 through loans from a shareholder
(collectively, the "Financings").
Through September 30, 2000, the Company has utilized all of the proceeds of the
Financings to (i) commence and pursue patent applications for the Nurescell
Technology, (ii) identify, negotiate and finalize suitable research, development
and testing contracts, and begin initial formal testing of the Nurescell
Technology, (iii) identify, negotiate and finalize preliminary marketing
consulting contracts and (iv) provide working capital for the ongoing
administrative and financing acquisition costs of the Company.
The Company has incurred losses since inception, including a net loss of
$176,603 for the three months ended September 30, 2000. From May 12, 1998
(inception) through September 30, 2000 the Company has had a cumulative loss of
$5,468,173. The Company has commenced manufacturing and has received orders for
its product. The Company is currently negotiating for the distribution of its
product in Europe, Russia, and the United Kingdom.
This section contains forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this section
should be read as being applied to all related forward-looking statements
wherever they appear in this document.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND
1999: Net sales of $ 0 for the three-month period ended September 30, 2000 were
the same as the net sales of $ 0 for the three-month period ended September 30,
1999, due to the Company still being in the development stage.
Operating expenses of $378,061 for the three-month period ended September 30,
2000 were 18% lower than the operating expenses of $461,524 for the three-month
period ended September 30, 1999. The decrease is primarily attributed to a
significant decrease in a non-cash stock based compensation expense to $68,000.
Interest expense of $78,542 for the three-month period ended September 30, 2000
was $78,542 higher than the interest expense of $ 0 for the three-month period
ended September 30, 1999. The increase is primarily attributed to non-cash
interest charges incurred in connection with the amortization of the discounts
on notes payable of $67,742 incurred during the three-month period ended
September 30, 2000 and the non-cash amortization of prepaid financing costs of
$10,800 during the three-month period ended September 30, 2000.
10
<PAGE>
As a result of the above factors, the net loss for the three-month period ended
September 30, 2000 was $176,603, or $0.01 per share, as compared to a net loss
of $461,524 or $0.04 per share for the three-month period ended September 30,
1999.
FINANCIAL POSITION. Total assets increased from $242,075 at March 31, 2000 to
$287,967 at September 30, 2000. The increase is primarily attributed to an
increase in fixed assets of $20,260 and an increase in inventory of $30,678.
Total liabilities decreased from $872,438 at March 31, 2000 to $828,698 at
September 30, 2000. The decrease in primarily attributed to amortization of note
discount of $85,157, an increase in due to officer of $32,424 and an increase in
accrued liabilities of $9,219, offset by the conversion of certain note payables
to the Company's Common Stock.
Shareholders' deficit decreased from $(630,363) at March 31, 2000 to $(540,731)
at September 30, 2000. The decrease is primarily attributed to an increase in
paid-in capital for the three-month period ended September 30, 2000, which
includes the receipt of $250,000 as a license fee, offset by the value of
issuance of warrants and options to investors, employees and consultants.
LIQUIDITY AND CAPITAL RESOURCES. The Company requires significant funding for
continued operations and to engage in continued marketing and sales activity.
The amount of expenditures required to maintain operations far exceeds existing
cash, which was $11,950 at September 30, 2000.
From March 31, 2000 to September 30, 2000, the Company's cash and cash
equivalents decreased $14,995. In addition, total liabilities of the Company
were $828,698 at September 30, 2000. As of October 1, 2000, cash is being
depleted at the rate of approximately $70,000 per month. The Company has
negotiated a $1,000,000 licensing fee (the "License Fee") from a European
company (Nurescell AG)owned 51% by the Company, such amount to be disbursed in
quarterly payments of $250,000 (less certain credits). The first payment was
received on August 17, 2000 and $100,000 of the second payment was received on
November 6, 2000.
The Company's cash flow used in operating activities decreased from $(186,562)
for the three-month period ended September 30, 1999 to $206,951 for the three
month period ended September 30, 2000. This decrease is primarily due to the
Company's decrease in net loss, the License Fee, offset by an increase in
non-cash charges
During the three-month period ended September 30, 2000, the Company has obtained
liquidity primarily from the License Fee of $250,000 and a loan from an officer
of $15,000.
11
<PAGE>
The Company anticipates that the proceeds to be received from the License Fee,
together with projected revenues from operations, will be sufficient to fund the
Company's operations and capital requirements until at least March 31, 2001.
There can be no assurance, however, that such funds will be sufficient to fund
the Company's operations and capital requirements until March 31, 2001 or that
such funds will not be expended prior thereto due to unanticipated changes in
economic conditions or other unforeseen circumstances.
The Company's financial statements for the quarter ended September 30, 2000 have
been prepared assuming the Company will continue as a going-concern. As noted in
the Company's financial statements for the year ended March 31, 2000, as filed
with the Company's report on Form 10-KSB for that period, the presence of
significant losses, negative cash flows and limited working capital, together
with the uncertainties associated with the ability of the Company to obtain
additional capital, raise substantial doubts as to the Company's ability to
continue as a going-concern. The Company's ability to continue as a
going-concern will be questionable until such time as it is able to generate
sufficient revenues in excess of expenses to sustain its normal business
activities. Until that time, the Company will depend on its ability to raise
additional capital through either loans or equity or debt offerings. At this
time, the Company expects that it will need approximately $3 million in
additional funding over the next two years in order to complete the marketing of
its Nurescell Technology. The Company is currently seeking financing of up to
$10,000,000 through a private offering of equity securities. There can, however,
be no guarantee that such financing will be obtained or that any additional
financing will be available on terms favorable to the Company or its
shareholders, if at all. If sufficient funds are not available when needed, the
Company will be required to severely curtail its operations, which would have a
material adverse effect on the Company's business, operating results and
financial condition.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than pending legal proceedings which have been previously reported in the
Company's reports on Form 10-QSB, to the knowledge of management, there is no
pending litigation by or against the Company.
12
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In July 2000, the Company privately issued 34,000 shares of common stock to
Dutchess Advisors Ltd. pursuant to the legal settlement. Based on Dutchess'
sophistication as an investor, the issuance was made in reliance on Section
4(2).
In August 2000, the Company privately issued 250,000 shares of common stock to a
trust controlled Glenn Cramer pursuant to the conversion of $412,500 of debt
owed by the Company. Based on Mr. Cramer's sophistication and access to Company
information as a lender and a major shareholder of the Company, the issuance was
made in reliance on Section 4(2).
In August 2000, the Company also privately issued 100,000 shares of common stock
to William A. Wilson pursuant to his employment contract. Based on Mr. Wilson's
sophistication and access to Company information as a director of the Company,
the issuance was made in reliance on Section 4(2).
Also in August 2000, the Company granted to Nurescell AG, the Company's
majority-owned German subsidiary, a five-year right to purchase up to $4 million
worth of the Company's Common Stock at a price equal to 80% of the average bid
price of the common stock during the five days prior to the exercise of the
option. In October, 2000, such right was increased to $10 million. Based on
Nurescell AG's relationship to the Company, the grant was made in reliance on
Section 4(2).
ITEM 5. OTHER INFORMATION
On August 21, 2000, James Samuelson replaced William A. Wilson as the Company's
President. From February 1, 2000 until November 17, 2000, Mr. Samuelson
served as Chief Operating Officer and Chief Financial Officer of Cetani, a
wholly-owned subsidiary of Advanced Technology Industries, Inc., a
publicly-traded company which operates various companies in the nuclear,
automotive, mining and materials science industries. From February 1998 to
January 2000, Mr. Samuelson served as Vice President of Corporate Finance for
Eastbrokers AG/WMP Bank AG in Vienna, Austria. In 1997, Mr. Samuelson served as
a Vice President of Grammont, Ltd., an investment banking firm in Paris, France.
Mr. Samuelson received his Master of Business degree in 1996 and a Bachelor of
Science degree in Business Administration in 1992, both from Creighton
University.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are attached hereto:
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Articles of Incorporation, as amended (1)
2.2 Bylaws (1)
3.1 Form of Class "A" Common Stock Purchase Warrant Certificate
(1)
3.2 Form of Class "B" Common Stock Purchase Warrant Certificate
(1)
3.3 Form of $385,000 Series 1999-A Convertible Promissory Note due
on December 1, 2001 (2)
3.4 Form of $385,000 Series 2000-A Convertible Promissory Note due
on December 1, 2001 (6)
3.5 Form of Warrant issued to Triton Private Equities Fund, L.P.
on December 15, 1999 (2)
3.6 Form of Warrant issued to Triton Private Equities Fund, L.P.
on February 8, 2000 (6)
6.1 Employment Agreement between the Company and Adrian A. Joseph,
Ph.D. dated May 15, 1998 (1)
6.2 Sale of Technology between the Company and Adrian A. Joseph
dated June 12, 1998 (1)
6.3 Employment Agreement between the Company and Sharon Nitka
dated June 1, 1998 (1)
6.4 Consulting Agreement between the Company and John Longenecker
dated June 26, 1998 (1)
6.5 Consulting Agreement between the Company and William A. Wilson
dated June 10, 1998 (1)
6.6 Consulting Agreement between the Company and Rita Lavelle
dated June 1, 1998 (1)
14
<PAGE>
6.7 Form of Stock Option Agreement between the Company and its
officers and directors (1)
6.8 1998 Stock Option Plan (1)
6.9 Form of Indemnification Agreement between the Company and its
officers and directors (1)
6.10 Letter of Understanding for Proposed Agreement Between the
Company and Performance Improvement International dated March
1, 1999 (3)
6.11 Research Plan submitted by the University of Missouri to the
Company (3)
6.12 Consulting Agreement between the Company and Dr. Chong Chiu
dated June 25, 1999 (4)
6.13 Investment Banking Services Agreement between the Company and
National Capital Merchant Group, Ltd. dated June 30, 1999 (4)
6.14 Employment Agreement between the Company and Harold L. Rapp
dated August 6, 1999 (5)
6.15 Securities Purchase Agreement between the Company and Triton
Private Equities Fund, L.P. dated December 15, 1999 (2)
6.16 Securities Purchase Agreement between the Company and Triton
Private Equities Fund, L.P. dated February 8, 2000 (6)
6.17 Registration Rights Agreement between the Company and Triton
Private Equities Fund, L.P. dated December 15, 1999 (2)
6.18 Registration Rights Agreement between the Company and Triton
Private Equities Fund, L.P. dated February 8, 2000 (6)
6.19 Promissory Note dated April 6, 2000 for $165,000 from the
Company to the Glenn A. Cramer Separate Property Trust (6)
6.20 Promissory Note dated May 1, 2000 for $82,500 from the Company
to the Glenn A. Cramer Separate Property Trust (6)
6.21 Promissory Note dated June 1, 2000 for $82,500 from the
Company to the Glenn A. Cramer Separate Property Trust (6)
15
<PAGE>
6.22 Consulting Agreement between the Company and Shelby T. Brewer
dated December 1, 1999 (6)
6.23 Employment Agreement between the Company and William Wilson
dated March 1, 2000 (6)
6.24 Consulting Agreement between the Company and Robert Merriman,
dated as of June 9, 2000 (6)
6.25 Investment Agreement between the Company and Nurescell AG
dated August 17, 2000
6.26 License Agreement between the Company and Nurescell AG dated
August 15, 2000
6.27 Registration Rights Agreement between the Company and
Nurescell AG dated August 15, 2000
27 Financial Data Schedule
-----------------
(1) Incorporated by reference from the Company's Registration
Statement on Form 10-SB (File No. 0-25377). Exhibit numbers
from that registration statement have been retained.
(2) Incorporated by reference from the Company's Report on Form
10-QSB for the quarter ended December 31, 1999 (File No.
0-25377).
(3) Incorporated by reference from amendment No. 1 to the
Company's Registration Statement on Form 10-SB (File No.
0-25377). Exhibit numbers from that Registration Statement
have been retained.
(4) Incorporated by reference from the Company's Report on Form
10-QSB for the quarter ended June 30, 1999 (File No. 0-25377).
(5) Incorporated by reference from the Company's Report on Form
10-QSB for the quarter ended September 30, 1999 (File No.
0-25377).
(6) Incorporated by reference from the Company's Report on Form
10-KSB for the year ended March 31, 2000 (File No. 0-25377).
(b) One report on Form 8-K was filed during the Company's fiscal quarter
ended September 30, 2000. Such report is dated August 11, 2000 and
provided disclosure under Item 4 regarding changes in the Company's
certifying accountant. No financial statements were required to be filed
with such report.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: November 20, 2000 NURESCELL INC.
By: /s/ James Samuelson
----------------------------
James Samuelson, President
By: /s/ SHARON NITKA
----------------------------
Sharon Nitka,
Chief Financial Officer
17
