<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 June 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 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 June 30, 2000: 15,299,288
Transitional Small Business Disclosure Format (check one): Yes /X/ No / /
1
<PAGE>
PART I - FINANCIAL STATEMENTS
<TABLE>
NURESCELL INC.
(A Company in the Development Stage)
BALANCE SHEETS
<CAPTION>
June 30, 2000 March 31, 2000
Unaudited Audited
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 71,447 $ 26,945
Accounts receivable 8,700 8,700
Inventory 34,716 25,078
Other prepaid expenses 15,093 13,732
------------ ------------
TOTAL CURRENT ASSETS 129,956 74,455
------------ ------------
PROPERTY AND EQUIPMENT net of accumulated
depreciation and amortization of $17,783 and $14,021 72,959 48,937
OTHER ASSETS
Deferred financing cost 72,517 84,999
Deposits 3,679 3,679
Intangibles 30,005 30,005
------------ ------------
TOTAL OTHER ASSETS 106,201 118,683
------------ ------------
TOTAL $ 309,116 $ 242,075
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable $ 187,983 139,289
Loan from officer 116,315 79,367
Accrued expenses 101,199 120,092
------------ ------------
TOTAL CURRENT LIABILITIES 405,497 338,748
NOTES PAYABLE 794,757 533,690
------------ ------------
TOTAL LIABILITIES 1,200,254 872,438
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 - 15,299,288 shares at June 30, 2000
and 15,191,788 shares at March 31, 2000 1,530 1,519
Additional paid-in capital 4,423,904 4,028,739
Receivable from stock option exercise (25,000) -
Accumulated deficit (5,291,572) (4,660,621)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) (891,138) (630,363)
------------ ------------
TOTAL $ 309,116 $ 242,075
============ ============
See accompanying Notes to Financial Statements
</TABLE>
2
<PAGE>
<TABLE>
NURESCELL INC.
(A Company in the Development Stage)
STATEMENTS OF OPERATIONS
<CAPTION>
Cumulative
For the period
For the three For the three May 12, 1998
months ended months ended (Date of Inception)
June 30, 2000 June 30,1999 to June 30, 2000
Unaudited Unaudited Unaudited
------------- ------------- -------------
<S> <C> <C> <C>
SALES $ - $ - $ 8,700
COST OF SALES - - 21,377
------------- ------------- -------------
GROSS LOSS - - (12,677)
OPERATING EXPENSES
Research and development - 99 66,632
General and administrative 526,245 236,450 5,076,221
Depreciation 3,762 1,602 19,005
------------- ------------- -------------
TOTAL EXPENSES 530,007 238,151 5,161,858
------------- ------------- -------------
LOSS FROM OPERATIONS (530,007) (238,151) (5,174,535)
OTHER INCOME (EXPENSE)
Interest income (expense) (100,944) 3,409 (110,259)
Loss on abandonment of computer software - - (6,778)
------------- ------------- -------------
TOTAL OTHER INCOME (EXPENSE) (100,944) 3,409 (117,037)
------------- ------------- -------------
NET LOSS $ (630,951) $ (234,742) $ (5,291,572)
============= ============= =============
BASIC AND DILUTED LOSS PER SHARE $ (0.04) $ (0.02) $ (0.40)
============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 15,247,901 13,094,538 13,186,137
============= ============= =============
See accompanying Notes to Financial Statements
</TABLE>
3
<PAGE>
<TABLE>
NURESCELL INC.
(A Company in the Development Stage)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM MAY 12, 1998 (INCEPTION DATE) TO JUNE 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)
Fair Value of Options 362,676 362,676
Net Loss (630,951) (630,951)
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2000 15,299,288 $ 1,530 $ 4,423,904 $ (25,000) $(5,291,572) $ (891,138)
============ ============ ============ ============ ============ ============
See accompanying Notes to Financial Statements
4
</TABLE>
<PAGE>
<TABLE>
NURESCELL INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS
<CAPTION>
Cumulative
For the period
For the three For the three May 12, 1998
months ended months ended (Date of Inception)
June 30, 2000 June 30, 1999 to June 30, 2000
Unaudited Unaudited Unaudited
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (630,951) $ (234,742) $ (5,291,572)
Adjustments:
Depreciation 3,762 1,602 17,783
Amortization of discount on notes payable &
deferred financing cost 80,224 - 111,375
Loss on abandonment of computer software - - 6,778
Issuance of stock for services - - 1,957,435
Issuance of stock for conversion of debt to capital - - 614,327
Fair value of options and warrants 181,000 - 598,895
(Increase) decrease in:
Advances to employees - 12,075 -
Accounts receivable - - (8,700)
Inventory (9,638) - (34,716)
Other prepaid expenses (1,361) - (15,093)
Due from officer - - -
Other receivables - 25,000 -
Increase (decrease) in:
Accounts payable 48,694 2,985 187,983
Accrued expenses (18,893) 6,518 101,199
------------- ------------- -------------
Net Cash Flows Used by Operating Activities (347,163) (186,562) (1,754,306)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (27,783) (3,628) (94,980)
Deposits - - (3,679)
Intangibles - - (30,005)
------------- ------------- -------------
Net Cash Flows Used by Investing Activities (27,783) (3,628) (128,664)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 7,500 75,000 1,048,101
Proceeds from issuance of notes 375,000 - 875,000
Proceeds from officer loan 36,948 - 116,315
Debt issuance costs - - (84,999)
------------- ------------- -------------
Net Cash Flows Provided by Financing Activities 419,448 75,000 1,954,417
------------- ------------- -------------
Net increase (decrease) in cash 44,502 (115,190) 71,447
Cash at beginning of period 26,945 125,421 -
------------- ------------- -------------
Cash at end of period $ 71,447 $ 10,231 $ 71,447
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF NON-CASH
FINANCING ACTIVITIES
Issuance common stock for services $ - $ 1,957,435
Issuance of common stock for conversion of
debt to equity - 614,327
See accompanying Notes to Financial Statements
5
</TABLE>
<PAGE>
NURESCELL INC.
(A Company in the Development Stage)
NOTES TO 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 $5,291,572 and negative working
capital of $275,541 as of June 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 complete the necessary testing
required 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.
NOTE 4: INVENTORIES
Inventories consisted of the following at June 30, 2000:
Raw material $ 13,657
Work in process -
Finished goods 21,059
--------------
$ 34,716
==============
NOTE 5: LOAN FROM OFFICER
Loan from officer at June 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 June 30, 2000 was $2,349.
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 June 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 June 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 June 30, 2000 was $155,726.
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.
NOTE 8: SHAREHOLDERS' EQUITY
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.
8
<PAGE>
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.
Options and warrants to purchase 1,285,500 and 540,000 shares of the Company's
Common Stock were outstanding at June 30, 2000 and June 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 is
in the process of withdrawing the offering and examining its alternatives for
future financing.
NOTE 9: RELATED PARTY TRANSACTIONS
The Company has received an unsecured loan of $116,315 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 June 30, 2000. Amounts accrued to these
directors for their services for the three months ended June 30, 2000 are
$9,000.
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.
Dutchess Advisors, Ltd. v Nurescell Inc. The Company has given sixty days notice
of its termination of its relationship with Dutchess Advisors, Ltd. However,
Dutchess is raising certain issues regarding compliance with the conditions of
the agreement. The Company agreed to grant Dutchess an option to purchase 34,000
shares of the Company's Common Stock which were valued at fair market value of
$76,500. The Company has accrued a liability in the amount of $76,500 for the
potential loss and is in the process of settling this suit.
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 June 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 June 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
$630,951 for the three months ended June 30, 2000. From May 12, 1998 (inception)
through June 30, 2000 the Company has had a cumulative loss of $5,291,572. 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 JUNE 30, 2000 AND 1999:
Net sales of $ 0 for the three-month period ended June 30, 2000 were the same as
the net sales of $ 0 for the three-month period ended June 30, 1999, due to the
Company still being in the development stage.
Operating expenses of $530,007 for the three-month period ended June 30, 2000
were 223% higher than the operating expenses of $238,151 for the three-month
period ended June 30, 1999. The increase is primarily attributed to a
significant increase in a non-cash stock option expense of $181,000, an increase
in accounting expenses of $54,487, a $36,000 severance package to the former
president, and an increase in legal expenses of $30,661.
Interest expense of $100,944 for the three-month period ended June 30, 2000 was
$100,944 higher than the interest expense of $ 0 for the three-month period
ended June 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 June 30, 2000
and the non-cash amortization of prepaid financing costs of $12,481 during the
three-month period ended June 30, 2000.
10
<PAGE>
As a result of the above factors, the net loss for the three-month period ended
June 30, 2000 was $630,951, or $0.04 per share, as compared to a net loss of
$234,742 or $0.02 per share for the three-month period ended June 30, 1999.
FINANCIAL POSITION. Total assets increased from $242,075 at March 31, 1999 to
$309,116 at June 30, 2000. The increase is primarily attributed to an increase
in cash of $44,502, and an increase in fixed assets of $24,022.
Total liabilities increased from $872,438 at March 31, 2000 to $1,200,254 at
June 30, 2000. The increase in primarily attributed to a debt increase of
$290,815 and an increase in accounts payable of $48,694.
Shareholders' deficit increased from $(630,363) at March 31, 2000 to $(891,136)
at June 30, 2000. The decrease is primarily attributed to operating losses for
the three-month period ended June 30, 2000, 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 $71,447 at June 30, 2000.
>From March 31, 2000 to June 30, 2000, the Company's cash and cash equivalents
increased $44,502. In addition, total liabilities of the Company were $1,200,254
at June 30, 2000. As of July 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 owned 51% by the
Company, such amount to be disbursed in quarterly payments of $250,000 (less
certain credits) upon signing of the contract, which took place on August 17,
2000.
The Company's cash flow used in operating activities increased from $(186,562)
for the three-month period ended June 30, 1999 to $(347,163) for the three-month
period ended June 30, 2000. This increase is primarily due to the Company's
increase in loss, offset by an increase in non-cash changes
During the three-month period ended June 30, 2000, the Company has obtained
liquidity primarily from the proceeds received from debt issuance totaling
$375,000 and used cash of $27,783 in acquiring property and equipment..
In the three-month period ended June 30, 2000, the Company received $7,500 in
cash for commitments to exercise stock options.
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 June 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 necessary testing and marketing of its Nurescell
Technology. The Company is currently seeking financing of up to $4,000,000
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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In January 2000, the Company privately issued 100,000 shares of common stock to
Dutchess Advisors, Ltd. ("Dutchess") in connection with its engagement as a
consultant to the Company. In June 2000, the Company privately issued an
additional 34,000 shares of common stock to Dutchess in connection with the
termination of its consulting services. Based upon Dutchess' sophistication and
access to Company information, the issuances were made in reliance on Section
4(2) of the Securities Act of 1933 ("Section 4(2)").
12
<PAGE>
In January 2000, the Company privately issued a total of 524,226 shares of
common stock to ten persons who were officers, directors, employees and/or
consultants to the Company as repayment of approximately $393,000 of outstanding
debt to those individuals. At the same time, nine of those individuals were also
issued a total of 734,562 shares of common stock as bonuses under Rule 16b-3(d)
of the Securities Exchange Act of 1934. Based on each individual's
sophistication and access to Company information, the issuances were made in
reliance on Section 4(2).
In February 2000, the Company privately issued a $385,000 convertible promissory
note and warrants for 75,000 shares of common stock to Triton Private Equities
Fund, L.P. for $250,000 in cash. The conversion rate for the note is the lesser
of (i) one share of common stock for each $5.156 of principal amount or (ii) an
amount equal to a percentage (starting at 105% and dropping to 95% in
increments) of the average of the three lowest closing bid prices for the common
stock during a specified trading period. The issuance was made pursuant to Rule
506 of Regulation D and Section 4(6) of the Securities Act of 1933 in a
negotiated transaction. Triton Private Equities Fund, L.P. is an accredited
investor.
In March 2000, the Company privately issued 10,000 shares of common stock to
Shelby T. Brewer pursuant to his exercise of previously acquired stock options
at $2.00 per share. Based upon Dr. Brewer's sophistication and access to Company
information by virtue of his being a Company director, the issuance was made in
reliance on Section 4(2).
In March 2000, in connection with the employment of William A. Wilson as the
Company's President, the Company granted Mr. Wilson (i) options to acquire up to
250,000 shares of common stock at $.75 per share and (ii) the right to receive a
bonus of 100,000 shares of common stock at the end of each six month period of
employment. Based on Mr. Wilson's sophistication and access to Company
information, the grants were made in reliance on Section 4(2).
In March 2000, the Company privately issued 15,000 shares of common stock to
Robert B. Shaw pursuant to his exercise of previously acquired stock options at
$1.00 per share. Based on Mr. Shaw's sophistication and access to Company
information as an employee of the Company, the issuance was made in reliance on
Section 4(2).
In April 2000, in connection with its engagement of International Media
Solutions, Inc. ("IMS") as a consultant, the Company granted IMS options to
purchase up to 100,000 shares of common stock at $0.25 per share and up to
50,000 shares of common stock at $2.00 per share (the latter being subject to
increase to up to $4.00 per share upon the occurrence of certain increases in
market value of the Company's common stock). In June 2000, IMS exercised its
options on the 100,000 shares. Based on IMS's sophistication and access to
Company information, the grants and issuance were made in reliance on Section
4(2).
In May 2000, the Company privately issued 7,500 shares of common stock to Robert
B. Shaw pursuant to his exercise of previously acquired stock options at $1.00
per share. Based on Mr. Shaw's sophistication and access to Company information
as an employee of the Company, the issuance was made in reliance on Section
4(2).
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)
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) No report on Form 8-K was filed during the Company's fiscal quarter ended
June 30, 2000.
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: August 21, 2000 NURESCELL INC.
By: /s/ William Wilson
----------------------------
William Wilson, President
By: /s/ SHARON NITKA
----------------------------
Sharon Nitka,
Chief Financial Officer
17
