As filed with the Securities and Exchange Commission on September 30, 1999
CIK No. 0001086500
Registration No. 333-78549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2 TO FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
HealthandBeautyDirect.com, Inc.
(Name of small business issuer in its charter)
Delaware (State or jurisdiction of incorporation or organization)
5961 (Primary Standard Industrial Classification Code Number)
52-2181967 (I.R.S. Employer Identification No.)
2328 West Joppa Road, Suite 100
Baltimore, MD 21093
(800) 797-5335
(Address and telephone number of principal executive offices and principal
place of business)
Brian M. Fraidin, Chief Executive Officer
HealthandBeautyDirect.com, Inc.
2328 West Joppa Road, Suite 100
Baltimore, MD 21093
(800) 797-5335
(Name, address and telephone of agent for service)
Copies to:
Drew Field
534 Pacific Avenue
San Francisco, CA 94133
(415) 296-9795
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
The securities on this Form are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act of 1933.
CALCULATION OF REGISTRATION FEE
Title of Proposed Proposed Amount
each class Amount to be maximum maximum of
of securities registered offering aggregate registration
to be price offering fee
registered per share
_______________________________________________________________________
common stock,
$.01 par value 500,000 $12.00 $6,000,000 --
_______________________________________________________________________
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Subject to Completion, Dated September 30, 1999
500,000 SHARES
[logo - HBD initials with an arrow symbol and the name of the
company spelled out]
HealthandBeautyDirect.com, Inc.
COMMON STOCK
This is the initial public offering of shares of our common stock.
The offering will end when all 500,000 shares are sold or earlier,
if we decide to close it, but no later than March 31, 2000. If we
have not sold at least 83,334 shares when the offering ends, all
amounts paid will be promptly refunded in full, with interest, and
without any deduction for expenses.
The shares have been approved for listing on the Chicago Stock
Exchange after completion of this offering.
This investment involves a high degree of risk. See "Risk Factors"
on pages 4 - 8.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these securities;
or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Underwriting
Price to Discounts and Proceeds to
Public Commissions HBD
Per Share $8.00 - $12.00 None $8.00 - $12.00
Total Minimum
(83,334 shares) $1,000,000 None $1,000,000
Total Maximum
(500,000 shares) $6,000,000 None $6,000,000
The date of this prospectus is September 30, 1999
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any jurisdiction in which such offer or solicitation is
unlawful.
TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors 4
Use of Proceeds 9
Dividend Policy 10
Dilution 10
Management's Discussion & Analysis of Financial
Condition and Results of Operations 11
Business 15
Management 21
Certain Transactions 23
Principal Shareholders 24
Description of Capital Stock 25
Shares Eligible for Future Resale 27
Plan of Distribution 27
Legal Matters 28
Experts 28
Additional Information 29
Index to Financial Statements F-1
Until ______________, 1999 (90 days after the date of this prospectus) all
dealers effecting transactions in the registered securities, whether or
not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PROSPECTUS SUMMARY
OUR BUSINESS
We market health and beauty-related products through direct to consumer
channels of distribution such as television, direct mail, the Internet and
radio. Our revenues are generated from sales of products that we own and
by providing direct to consumer marketing services for our clients; products.
We operate as a principal for products that we own and as an agent for
products that our clients own. Our business includes developing marketing
campaigns, purchasing direct response advertising and handling product
fulfillment.
OUR OBJECTIVE
Our objective is to become the country's leading direct response marketer
of high-quality health and beauty-related products and services. We plan
to use the proceeds of this offering to expand our direct to consumer
marketing efforts,Internet web site, regional service centers and
product lines.
STRUCTURE OF THE BUSINESS
We began in 1994 as a partnership under the name Transforming Cosmetics.
HealthandBeautyDirect.com, Inc., a Delaware corporation, was formed March
18, 1999, because a corporation is a more suitable form for public share
ownership than a partnership. After the minimum number of shares is sold
in this offering, all of the assets and liabilities of Transforming
Cosmetics will be transferred to the corporation in exchange for 7,000,000
shares of its common stock. The terms "HealthandBeautyDirect.com", "HBD",
"we" or "our" mean the corporation and its predecessor partnership.
THIS OFFERING OF SHARES
We are offering shares of our common stock directly to selected investors,
for a minimum investment of 50 shares at $12 per share or $600. You may
become a shareholder by filling out the Share Order Form and returning it
with your check for the amount of your investment. All payments for
shares will be deposited into an escrow account at Bank of America, until
we have sold 83,334 shares. If we have not sold the minimum number of
shares by the termination date, all amounts paid will be promptly refunded
in full, with interest, and without any deduction for expenses. The
offering will end upon the earlier of: the sale of the maximum of 500,000
shares, March 31, 2000, or the earlier date on which we decide to close
the offering. A minimum purchase of 50 shares is required. We reserve
the right to reject any subscription in full or in part.
HOW TO CONTACT US
Our corporate offices are located at 2328 West Joppa Road, Suite 100,
Baltimore, MD 21093. Our telephone number is (800) 797-5335, our fax
number is (800) 410-5858 and our web site address is
www.healthandbeautydirect.com.
RISK FACTORS
OUR BUSINESS STRATEGY MUST SUCCEED FOR US TO COVER ITS ADDED COSTS.
We are increasing our costs by adding employees and equipment to handle
increased volume of sales and more products. We need to increase sales
enough to pay for these greater costs, and make a profit. Our continued
growth and profitability will depend upon our ability to implement our
business strategy and successfully expand our channels of distribution,
including:
- - the level of customer acceptance of our products and services;
- - our ability to create product and brand name awareness;
- - continuing to develop effective direct response advertising
- - our ability to identify health and beauty-related companies and
either acquire or form joint venture marketing relationships with these
companies;
- - our ability to successfully identify and respond to emerging trends
in the health and beauty-related industry;
- - developing internally, through joint venture or by acquisition,
expansion of our direct response infrastructure which includes media
buying, management information systems, telemarketing, fulfillment
and creative production;
- - our ability to continue to expand in the face of increasing
competition from other companies in the distribution of health and beauty-
related products and services;
- - successful hiring, training and retaining skilled employees, and
- - general economic conditions and consumer confidence.
These elements are described later in this prospectus, under the caption
"Business: General business strategy."
WE ARE NOT USING A SECURITIES DEALER TO BUY ALL THE SHARES IN THIS
OFFERING, SO LESS THAN ALL THE SHARES MAY BE SOLD.
Most initial public offerings are sold in a "firm commitment
underwriting," in which a securities broker-dealer agrees to purchase all
of the shares offered, if they purchase any at all. In this direct
offering, at least 83,334 shares must be sold, or all the purchase monies
will be returned. If that minimum amount is sold, but less than the
maximum 500,000 shares, there will be less money for expansion, as shown
in the "Use of Proceeds" section of this prospectus. The proceeds from the
sale of the shares may be held in an escrow account until as late as March
31, 2000. During this time, investors cannot demand return of the amounts
they paid. If we do not sell the minimum number of shares, the investors
will be refunded their investment in full with interest. Details about
the offering are in "Plan of distribution," later in this prospectus.
THE TRADING MARKET FOR OUR SHARES MAY BE LIMITED, SO THAT ONLY SMALL
AMOUNTS CAN BE SOLD AT THE PUBLISHED PRICE.
Our shares have been approved for listing on the Chicago Stock Exchange
after completion of this offering. However, this will be an auction
market and the ability to sell shares will depend upon the Exchange
specialist having bids to buy shares. Offers to sell significant numbers
of shares could cause the price to go down, until sufficient bids to buy
developed. There is information in this prospectus about the ability of
earlier investors to sell their shares after this offering, under the
caption "Shares eligible for future resale."
OUR WEB SITE MUST INCREASE SALES AND REDUCE COSTS ENOUGH TO PAY FOR ITS
DEVELOPMENT AND OPERATION.
We believe that broad recognition and a favorable consumer perception of
the HealthandBeautyDirect.com brand are essential to our future success.
Our Internet strategy is described in this prospectus in the "Business:
Internet sales" section. We will need to spend significant amounts on
advertising and promotions. The number of new customers or the number of
transactions on our web site may not justify our advertising and
promotional expenditures. Some of the challenges to our building and
operating a profitable web site are to:
- - complete development and testing of our web site within the next six
months;
- - cost effectively drive traffic to our web site;
- - develop an interesting and easy to navigate web site;
- - attract and retain leading product manufacturers and service providers
as participants;
- - develop strategic alliances for product development, marketing and
distribution;
- - maintain and enhance recognition of our web site brand name;
- - provide consumers with valuable information so that they continue to
frequent our web site;
- - manage the interaction among our web site and other direct response
channels of distribution;
- - continue to develop and upgrade our technology and information-
processing systems; and
- - provide superior customer service.
WE ARE LIKELY TO EXPERIENCE LOSSES AS WE DEVELOP AND EXPAND THE WEB SITE.
Although we have profitably managed the growth of our direct response
marketing business during the last two years, we are likely to experience
losses as we aggressively develop and expand our web site and build the
HealthandBeauty Direct.com brand name. These losses, if incurred, could
be caused by:
- - hiring additional people to develop, maintain and expand our web site;
- - advertising and promotional efforts to drive traffic to our web site;
- - finding new health and beauty-related products and services to offer on
our web site;
- - developing marketing materials to sell our new health and beauty-
related products and services;
- - purchasing computers, telecommunications and other infrastructure
equipment; and
- - expanding our general office and administrative overhead.
WE EXPECT INTENSE COMPETITION FOR OUR WEB SITE CONCEPT.
There is a continuing rapid increase in the number of web sites competing
for the attention and spending of consumers and advertisers. We will
compete particularly with the following types of companies:
- - online services or web sites that target consumers in search of health
and beauty-related products or services, such as women.com, eve.com,
phys.com, healthshop.com, drugstore.com, iVillage.com,
planetrx.com,drkoop.com, cosmeticscounter.com and many others;
- - web retrieval and other web "portal" companies, such as AOL, Inc.,
Excite,Inc., Infoseek Corporation, Lycos, Inc.,Yahoo! Inc. and
many others; and
- - publishers and distributors of traditional media, such as television,
radio and print.
Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could hurt our business. To be
competitive, we must respond promptly and effectively to the challenges of
technological change, evolving standards and our competitors' innovations
by continuing to enhance our services, as well as our sales and marketing
channels. Competition is likely to increase significantly as new
companies enter the market and current competitors expand their services.
Many of these potential competitors are likely to enjoy substantial
competitive advantages, including:
- - larger technical staffs;
- - greater name recognition;
- - larger customer bases; and
- - substantially greater financial, marketing, technical and other
resources.
OUR WEB SITE IS DEPENDENT ON INTERNET TECHNOLOGY AND OTHER FACTORS OVER
WHICH WE HAVE NO CONTROL.
For us to expand, consumers who have historically used traditional means
of commerce will instead need to elect to purchase health and beauty-
related products and services online. Very few products and services have
been profitably sold over the Internet. A sufficiently broad base of
consumers may not adopt, or continue to use, the Internet as a medium of
commerce.
Our success will also depend upon the development and maintenance of the
Internet's infrastructure to cope with increased traffic. This will
require a reliable infrastructure with the necessary speed, data capacity
and security. The Internet has experienced a variety of outages and
delays as a result of damage to portions of its infrastructure. Future
outages and delays would be likely to affect the level of Internet usage
and the processing of transactions on our web site. In addition, the
Internet could lose its viability due to delays in the development or
adoption of new standards to handle increased levels of activity or due to
increased government regulation. The adoption of new standards or
government regulation may require us to incur substantial compliance
costs.
OUR WEB SITE BRAND NAME COULD BE LOST OR DAMAGED.
We currently hold the Internet domain name "healthandbeautydirect.com,"
and a number of other related names. We could be unable to prevent third
parties from acquiring domain names that infringe or otherwise decrease
the value of our trademarks and other proprietary rights. The regulation
of domain names in the United States and in foreign countries is subject
to change. Regulatory bodies could establish additional top-level domains,
appoint additional domain name registrars or modify the requirements for
holding domain names. As a result, we may not acquire or maintain the
"healthandbeautydirect.com" domain name in all of the countries in which
we may desire to conduct business. In addition, the relationship between
regulations governing domain names and laws protecting trademarks and
similar proprietary rights is unclear. Therefore, we could be unable to
prevent third parties from acquiring domain names that infringe or
otherwise decrease the value of our trademarks and other proprietary
rights.
OUR SERVICE CENTER AND DIRECT SALES OPERATIONS WILL BE IMPORTANT FOR OUR
EXPANSION AND WE HAVE ONLY A LIMITED HISTORY WITH THEM.
We need to effectively execute our plan to open service centers and
develop a direct sales network in new geographic markets. Some of the
challenges explained in this prospectus under "Business: Service centers"
are to:
- - recruit, hire, train, manage and retain health and beauty
professionals;
- - manage the interaction among our multiple channels of distribution;
- - negotiate acceptable lease and operational terms;
- - generate additional direct marketing inquiries; and
- - refer selected direct marketing inquiries to our service centers and
direct sales network.
CURRENTLY, WE RELY HEAVILY ON OUR PRINCIPAL PRODUCT AND ITS DEVELOPER FOR
A SIGNIFICANT PORTION OF OUR REVENUES.
A significant portion of our revenues and net income to date has been from
distribution of the Natural Cover cosmetic products. Our revenues and net
income in the short term will continue to be closely tied to the success
of this product line. The marketing strategy for the Linda Seidel Natural
Cover product line is to emphasize the performance qualities of its
foundation system and to maintain and enhance Linda Seidel's public image
as a credible and authoritative source on the use of cosmetics. The loss
of the services of Ms. Seidel, or a decline in her public image, would
have a material adverse effect on HBD.
OUR REVENUES ARE DEPENDENT ON A LIMITED NUMBER OF PRODUCTS AND SERVICES.
Our revenues have been dependent upon the marketing of a limited number of
products and services. Although we have continued to expand our revenues
by providing various direct marketing services to third party clients,
there is no assurance that we will be able to continue to successfully do
so in the future. We do not maintain long-term contracts with our clients.
We anticipate that our results of operations in any given period will
continue to depend to a significant extent upon revenues from a small
number of clients. In addition, we anticipate that such clients will
continue to vary over time, so that the achievement of our long-term goals
will require us to obtain additional clients on an ongoing basis. The loss
of one or more clients or our inability to enter into new client
relationships during a particular period could have a material adverse
effect on our business, financial condition and results of operations.
WE MAY FAIL TO DEVELOP NEW PRODUCTS AND ENHANCEMENTS THAT WILL ATTRACT AND
RETAIN OUR CUSTOMERS.
Our growth and success will depend, in a significant part, upon our
ability to enhance existing products and services, to develop new products
and services and to assist new clients in marketing their products and
services. Each of our product and service offerings must be responsive to
customer needs to successfully achieve market acceptance. We will incur
substantial expense and use significant resources as we expand the type
and range of the products and services that we offer. However, we may not
be able to attract sellers to provide such products and services or
consumers to purchase such products and services through our channels of
direct response distribution. In addition, if we launch new products or
services that are not favorably received, our reputation and the value of
our brand name, HealthandBeautyDirect.com, could be damaged and have a
material adverse effect on our business and financial condition.
WE COULD LOSE OUR ABILITY TO MAKE CREDIT CARD SALES, IF OUR CUSTOMER
RETURN RATES INCREASE TOO MUCH.
Part of our marketing and advertising strategy focuses on providing
liberal merchandise return policies of up to sixty days during which
customers may return products and obtain an unconditional full refund of
the purchase price less shipping and handling. Credit card processing
companies provide customers with up to six months to request and receive a
credit card charge back for their purchases. As we expand our revenues
through new channels of distribution and new product introductions, our
return rates could increase. Our current reserves for returns and credit
card charge backs could become inadequate to cover these claims. In order
to continue accepting electronic payment by credit card, we must maintain
a merchant account with a bank or finance company. Maintaining a merchant
account is dependent upon our credit rating and percentage of customer
credit card charge backs. The loss of our merchant account, and the
inability to secure another merchant account, would have a material
adverse effect on our business and financial condition.
THE TIMING OF OUR EXPENDITURES MAY NOT MATCH WITH OR RESULT IN SUFFICIENT
GENERATION OF REVENUES.
Our business involves a number of risks inherent in the operation of a
direct marketing business. The production of marketing materials and media
purchases for the Internet and television involve significant advance
expenditures. These expenditures cannot be adjusted based upon actual
performance. In addition, direct marketing operations involve significant
expenditures for the purchase of merchandise and the expenses associated
with our order processing, fulfillment and management information systems.
If our direct marketing campaigns are unsuccessful, we may not be able to
recoup these advance expenditures, which could have a material adverse
effect on our business, financial condition and results of operations.
WE ARE DEPENDENT ON MANUFACTURERS, VENDORS AND SUPPLIERS WHO COULD FAIL TO
PROVIDE US WITH PRODUCT.
We use various domestic and foreign suppliers to manufacture our products
and provide us with packaging components. In addition, our operations rely
on a number of different outside service providers, such as telemarketing
companies, credit card processing firms, marketing professionals,
fulfillment houses and delivery companies. We have no long-term
contractual assurances of continued supply, pricing or access to
components with these manufacturers, vendors or suppliers necessary for
the operation of our business. The existing relationships are based on
short-term service contracts that may be terminated by either party with
little or no notice. In addition, we must compete with other companies
for the services provided by these vendors. Certain components used in
our products are available from a limited number of sources. If
alternative suppliers were needed in the future, or if sufficient supplies
could not be obtained from the existing sources, there could be delays in
shipments or cost increases. In light of our emphasis on exceptional
customer service, the efficient and uninterrupted operation of our order
processing and fulfillment functions are critical to our business.
Moreover, the successful operation of our direct marketing business is
dependent upon the timely and efficient preparation of marketing materials
and media purchases. Any interruption in services from outside service
providers, including delays or disruptions resulting from labor disputes,
such as the 1997 UPS strike, power outages, human error, adverse weather
conditions or natural disasters, could have a material adverse effect on
our business, operating results and financial condition.
WE WILL BE INCREASINGLY DEPENDENT ON MANAGEMENT INFORMATION SYSTEMS, WHICH
COULD FAIL TO OPERATE EFFECTIVELY.
Our business is largely dependent upon management information systems that
assist in processing orders, electronically charging customer credit
cards, analyzing direct response media results, shipping merchandise on a
timely basis, responding to customer service inquiries and analyzing data
on the operation of the business. Effective operation of both the
existing management information systems as well as newly developed systems
to manage our growth will be critical to our success, as explained in this
prospectus, under the caption "Business: Management information systems."
If we experience difficulties in implementing or operating our management
information systems, this could have a material adverse effect on our
business, operating results and financial condition.
IF WE WERE REQUIRED TO COLLECT ADDITIONAL SALES OR USE TAXES, OUR SALES
COULD BE LESS AND OUR COSTS GREATER.
We collect sales and use taxes on transactions with residents of Maryland
only. In the future, we may have to collect taxes on sales to residents
of other states. This potential is described under the heading "Business:
Legal Proceedings." Additional taxes and collection responsibilities
would make it more expensive for consumers to purchase our products and
would increase our administrative costs.
FAILURE TO RETAIN EXISTING PERSONNEL AND TO ATTRACT ADDITIONAL KEY
MANAGEMENT PERSONNEL COULD AFFECT OUR GROWTH.
Our success will be dependent on the experience and abilities of the
existing shareholders of the General Partner of Venture Media Limited
Partnership, the majority shareholder of HealthandBeautyDirect.com. The
loss of these services could have a material adverse effect on our future
growth. Brian M. Fraidin is a shareholder in the General Partner of
Venture Media Limited Partnership and is the chief executive officer of
HealthandBeautyDirect.com. In such capacity he is responsible for
overseeing all the day-to-day operating decisions for the business. Other
shareholders of the General Partner of Venture Media Limited Partnership
participate in the strategic, financial and legal decision-making. They
are not employees of HealthandBeautyDirect.com and each of them is
actively involved with various other business investments. The services of
Mr. Fraidin and the other shareholders of the General Partner of Venture
Media Limited Partnership will be provided to HealthandBeautyDirect.com
through a management services agreement with Direct Marketing Services
Group, LLC. This entity is owned by various partners of and advisors to
Venture Media Limited Partnership who have provided management services to
the Company. Our only employment agreement is with Linda Seidel. Venture
Media Limited Partnership currently maintains a key man life insurance
policy on Mr. Fraidin in the amount of $2,500,000. This policy will be
transferred or reissued in the name of the Company upon the closing of
this offering. There can be no assurance that we will be able to maintain
such key man life insurance in the future.
In addition, our performance is substantially dependent on:
- - the continued employment and performance of our current operating
management team;
- - our ability to retain and motivate our key employees; and
- - our ability to identify, hire, train, retain and motivate additional
highly skilled technical, managerial and marketing personnel.
Competition for personnel in our industry is intense. If we do not succeed
in attracting new personnel or retaining and motivating our current
personnel, the financial condition and operating results of our business
could suffer significantly.
ALLEGED VIOLATIONS OF GOVERNMENTAL REGULATIONS RELATING TO OUR BUSINESS
MAY ADVERSELY AFFECT US.
Our products, and our marketing and advertising practices, are subject to
regulation by various federal, state and local regulatory authorities,
including the Federal Trade Commission, Federal Communications Commission
and the U.S. Food and Drug Administration. We are also subject to other
federal, state and local regulatory requirements, including federal, state
and local environmental regulation and regulations issued by the U.S.
Occupational Safety and Health Administration. As we begin to market a
broader variety of products and services, we may become subject to
regulation by agencies other than those listed above. An alleged violation
of any of these regulations could have a serious adverse financial effect
on us and cause a major change or discontinuance of our business.
OUR BUSINESS EXPOSES US TO POTENTIAL PRODUCT LIABILITY RISKS THAT MIGHT
NOT BE COVERED BY INSURANCE.
Selling health and beauty-related products carries the risk of consumer
claims for harmful effects. We maintain general liability and business
interruption insurance. However, the loss of insurance coverage, or
claims in excess of the insurance coverage, could have a material adverse
effect on our business, operating results and financial condition.
PREFERRED STOCK COULD BE ISSUED WITHOUT A SHAREHOLDER VOTE AND COULD LIMIT
FUTURE SHARE PRICES.
Our Board of Directors have no present intention to issue any shares of
authorized preferred stock. They could do so, however, without further
vote or action by the shareholders. They are also authorized to fix the
terms and provisions of each series, as detailed under "Description of
Capital Stock: Preferred stock." These provisions could limit the price
that investors might be willing to pay in the future for shares of our
common stock.
SALES OF SIGNIFICANT AMOUNTS OF COMMON STOCK BY CURRENT SHAREHOLDERS IN
THE PUBLIC MARKET AFTER THIS OFFERING COULD ADVERSELY AFFECT THE MARKET
PRICE OF THE COMMON STOCK.
Of the 7,000,000 shares to be issued to our present owners, 5,477,216
shares are subject to a "lock-in agreement" which restricts their transfer
during the two years following completion of this offering. This is all
shown under the captions "Principal shareholders" and "Shares eligible for
Future Sale."
WE MAY IDENTIFY INTERNAL SYSTEMS THAT PRESENT A YEAR 2000 COMPLIANCE RISK.
The Year 2000 issue is the result of computer programs written using year
identifiers, consisting of two digits, rather than four. Use of two
digits to identify years may cause certain systems to recognize a date
using "00" as the year 1900, rather than the year 2000. The year 2000
issue could result in system failures or miscalculations causing
disruption to the operation of many businesses. We have formed a Year 2000
Project Group to identify and correct potential compliance problems. As
our analysis of our internal systems proceeds, we may identify systems
that present a Year 2000 risk and may have a material adverse effect on
our business, financial condition and results of operations.
WE MAY IDENTIFY THIRD PARTY SYSTEMS THAT PRESENT A YEAR 2000 COMPLIANCE
RISK.
We have received assurances from many of our suppliers that they are or
will become Year 2000 compliant in a timely manner. We also rely upon
governmental agencies, telecommunication service companies, utility
companies and other service providers outside of HBD's control.
Additionally, the Internet could face serious disruptions arising from the
Year 2000 problem. Significant uncertainty exists concerning the
potential costs and effects associated with any year 2000 compliance. Any
year 2000 compliance problem involving HBD, our current or any future
strategic marketing partners, our vendors or our users could have a
material adverse effect on our business, financial condition and results
of operations. We also cannot guarantee that consumers will be able to
visit our web site without serious disruptions arising from the Year 2000
problem. Given the pervasive nature of the Year 2000 problem, we cannot
guarantee that disruptions in other industries and market segments will
not adversely affect our business. Moreover, the costs related to Year
2000 compliance could be significant.
FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus that are not purely historical
are forward-looking statements. They include our expectations, hopes,
beliefs, intentions or strategies for the future. Forward-looking
statements often use words like "expects," "will," "may," "anticipates,"
"believes," "intends" and "seeks." Examples include statements about
increasing our channels of distribution and developing new products. Our
actual results could differ materially from those suggested by our
forward-looking statements.
HOW WE INTEND TO USE THE PROCEEDS OF THIS OFFERING
We estimate that the net proceeds to HBD will be $815,000 from the sale of
the minimum number of shares, $2,815,000 from sale of the midpoint number
of shares, and $5,815,000 from sale of the maximum number of shares, after
deducting estimated offering expenses payable by HBD. The table below
shows how we intend to use the estimated net proceeds from this offering,
for the minimum, the maximum and a selected mid-point of sales.
Approximate Amount and Percentage
Category Description 83,334 shares 250,000 shares 500,000 shares
Direct Response
Marketing (1) $400,000 49.1% $900,000 32.0% $1,600,000 27.5%
Web Site Development(2) $225,000 27.6% $600,000 21.3% $1,200,000 20.6%
Service Centers
& Direct Sales(3) $125,000 15.3% $400,000 14.2% $ 800,000 13.8%
Product Line Expansion(4) $ 65,000 8.0% $300,000 10.7% $ 750,000 12.9%
Management Personnel(5) $ 0 00.0% $265,000 9.4% $ 600,000 10.3%
Capital Equipment(6) $ 0 00.0% $200,000 7.1% $ 450,000 7.7%
Inventory(7) $ 0 00.0% $150,000 5.3% $ 415,000 7.1%
--------- ----- -------- ------ ---------- ------
Total Use of Net Proceeds $815,000 100.0% $2,815,000 100.0% $5,815,000 100.0%
The categories for expenditure are described as follows:
1. Direct response marketing is our single largest expenditure and
includes expenses related to production of print, television, audio and
video marketing materials, media buying and the distribution costs
associated with direct to consumer marketing campaigns.
2. Web site implementation includes expenditures for graphic design,
technical design, content development, hosting, marketing and
maintenance. In addition, it is anticipated that funds will be
required to bring the computer and operational systems for new
clients' products on-line for distribution.
3. Expansion of our service centers and direct sales force will require
expenditures on new site development, physical location build-out,
office furniture, computer equipment, personnel recruitment,
training, marketing materials and initial advertising campaigns.
4. Product line development and expansion for distribution through our
web site, service centers and direct response marketing efforts will
be required to provide our customers with a comprehensive selection
of products and services.
5. Additional management personnel will be hired to oversee the
operations of the Company's expanded marketing efforts in such areas
as our web site, service centers, direct sales and new product
expansion.
6. The introduction and expansion of our channels of distribution will
involve continued capital investment in areas such as
telecommunications, computer equipment and design systems.
7. The introduction of new products will require additional investment
in inventory of these products at our fulfillment centers for timely
and efficient delivery to our customers.
From time to time, we expect to evaluate possible acquisitions of or
investments in businesses, products and technologies that are
complementary to those of HBD, for which a portion of the net proceeds of
this offering may be used. We are routinely contacted by product
developers, and in such capacity evaluate new product proposals, and we
make new business presentations as part of ordinary course of business. We
presently have no commitments or understandings for any such acquisitions
or investments, and are not presently engaged in any serious negotiations.
No portion of the net proceeds has been allocated for any specific
acquisition or investment. Our future growth and profitability could be
affected by decisions on any acquisitions of or investments in businesses,
products and technologies. Management will be able to make those
decisions without a vote by the shareholders.
We believe that the proceeds of this offering, together with projected
cash flow from operations and available cash resources, including our Bank
of America line of credit, will be sufficient to satisfy our cash
requirements for at least 12 months following this offering. We believe
that the effect of raising less than the maximum amount in this offering
would be to limit the rate at which we might invest for expansion. If, we
are unable to implement our strategy as currently projected for reasons
such as changes in market conditions, competitive factors, unanticipated
expenses, or operating difficulties, we may reallocate a portion of the
proceeds within the categories listed above. For example, if our direct
response marketing is more effective than projected, we may reduce the
amount to be spent for direct response marketing and reallocate it to
building inventory to handle the resulting higher sales volume. And while
we may also seek additional financing, it is possible that financing may
not be available on commercially reasonable terms, or at all.
We will invest the proceeds not immediately required for the purposes
described above principally in United States government securities, short-
term certificates of deposit, money market funds or other short-term
interest-bearing investments.
DIVIDEND POLICY
We do not expect to pay any cash dividends on the common stock in the
foreseeable future. The board of directors currently plans to retain
earnings for the development and expansion of our business. Any future
determination as to the payment of dividends will be at the discretion of
the board of directors and will depend on a number of factors including
future earnings, capital requirements and financial condition.
Through December 31, 1998, HBD was treated for federal and state income
tax purposes as a general partnership under the Internal Revenue Code. As
a result, our earnings were subject to taxation at the partner rather than
the corporate level for federal and state income tax purposes.
DILUTION
On June 30, 1999, HBD had a net tangible book value of $1,678,822or $0.24
per share. The net tangible book value per share is equal to our total
tangible assets, less total liabilities and divided by total number of
shares of common stock outstanding. After giving effect to the sale of the
minimum and maximum number of shares being offered, at the maximum public
offering price of $12.00 per share, and the application of the estimated net
proceeds, HBD's pro forma net tangible book value as of June 30, 1999 would
have been $2,493,822 after sale of the minimum and $7,493,822 after sale of the
maximum number of shares, or $0.35 per share and $1.00 per share. This
represents an immediate increase in net tangible book value to present
owners of $0.11 per share at the minimum and $0.76 per share at the maximum.
It represents an immediate dilution to new investors purchasing shares in
this offering of $11.65 per share at the minimum and $11.00 per share at
the maximum. The following table illustrates the per share dilution in
net tangible book value per share to new investors:
MINIMUM MAXIMUM
(83,334 shares)(500,000 shares)
Public offering price per share $12.00 $12.00
Net tangible book value per share
On June 30, 1999 $0.24 $0.24
Increase in net tangible book value
per share attributed to new investors 0.11 0.76
Pro forma net tangible book value per share
as of June 30, 1999 0.35 1.00
Net tangible book value dilution per share
to new investors $11.65 $11.00
This table shows what the present owners paid for their ownership of the
business in 1994 and 1995, compared to the price of shares in this
offering, assuming that the minimum number of shares are sold in this
offering:
Shares Percent Amounts Percent Price
owned paid share
Present owners 7,000,000 98.8% $1,695,969 62.9% $ 0.24
New investors 83,334 1.2% $1,000,008 63.9% $12.00
The following table shows the same information, assuming that a midpoint
number of shares are sold in this offering:
Shares Percent Amounts Percent Price
owned paid share
Present owners 7,000,000 96.6% $1,695,969 36.1% $ 0.24
New investors 250,000 3.4% $3,000,000 63.9% $12.00
The following table shows the same information, assuming that the maximum
number of shares are sold in this offering:
Shares Percent Amounts Percent Price
owned paid share
Present owners 7,000,000 93.3% $1,695,969 22.0% $ 0.24
New investors 500,000 6.7% $6,000,000 78.0% $12.00
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
HBD provides direct marketing services for specialty health and beauty-
related products. Since our inception, we have focused our efforts on
developing a direct response operating infrastructure and marketing
capabilities. These capabilities have enabled us to market our principal
products under the Linda Seidel Natural Cover brand name as well as offer
similar direct response marketing services to third party clients. In
addition, we have begun to expand our multiple direct response channels of
distribution. We have experienced an increase in net sales from $7.69
million in 1997 to $9.55 million in 1998, an increase of 24%. During the
first six months of 1999, we experienced a 6% increase in net sales to
$5.58 million from $5.38 for the first six months of 1998.
We have invested significant resources in terms of capital and senior
management time in developing our direct response infrastructure including
upgrading our proprietary management information systems to support our
customer service and fulfillment departments, enhanced telecommunications
equipment, media buying capabilities and streamlining operating facilities
to handle growth in net sales. This integrated operating infrastructure
enables us to significantly influence the execution of our marketing
strategy, advertising expenditures and fulfillment of customer purchases,
while maintaining valuable direct customer relationships.
Our net sales are generated through use of direct response advertising
techniques to market our products or the products of our clients. As we
have expanded our product lines and client base, we believe we have been
able to leverage our operating infrastructure and marketing capabilities.
We are executing a phased expansion of our channels of distribution,
including television, the Internet, direct mail, medical professional
network, specialty service centers and independent distributors.
Our marketing strategy has been to reduce HBD's reliance on any one
product or any one channel of distribution. In 1997, purchases of Linda
Seidel's Natural Cover products directly from television accounted for
approximately 68% of net sales, purchases of Linda Seidel Natural Cover
products from other channels of distribution such as medical offices and
reorder customers accounted for approximately 10% of net sales and direct
response media sales and services to third party clients accounted for
approximately 22% of net sales. This diversification of net sales
continued during 1998 with purchases from television of Linda Seidel's
Natural Cover products accounting for approximately 41% of net sales,
purchases of Linda Seidel Natural Cover products from other channels of
distribution accounting for approximately 12% of net sales and direct
response media sales and services to third party clients accounting for
approximately 47% of net sales.
The prevailing market conditions, in addition to the successful
development and testing of our marketing materials and those of our
clients, have caused the volume and timing of our direct response
advertising efforts to vary. As a result, our financial results have
fluctuated significantly from quarter-to-quarter and year-to-year, and may
continue to do so in the future.
We generally recognize revenues on product purchases when they are shipped
to customers and on direct response media sales and services when they are
provided to clients. We have created a reserve for product refunds and
bad debts associated with product sales and credit card receivables based
on historical statistical trends. Third party clients prepay for direct
response media sales and services. HBD accounts for these prepayments as
a current liability until the services are provided. Our gross profit
margin has fluctuated from year-to-year based on a combination of changes
in the cost of goods percentage associated with our product mix,
development of various channels of distribution, increased revenues from
direct response media sales and services to clients and economies of scale
achieved from our vendors.
We capitalize the production costs for development of our direct response
marketing materials. At December 31, 1997, we had unamortized production
costs associated with direct response marketing materials of $338,449.
There were unamortized production costs associated with direct response
marketing materials of $453,560 at December 31, 1998. At June 30, 1999,
we had unamortized production costs for direct response marketing
materials of $422,043. These costs are being amortized over their
expected useful life based on management's current estimates.
We expense direct response advertising costs in proportion to the total
future economic benefits directly attributable and traceable to those
costs. For the year ending 1997, we expensed $2,367,232 and capitalized
$256,927 of direct response advertising costs associated with the Linda
Seidel Natural Cover product line. For the year ending 1998, we expensed
$1,924,877 and capitalized $393,379 of direct response advertising costs
associated with the Linda Seidel Natural Cover product line. Capitalized
direct response advertising costs are being amortized over their estimated
future economic benefits, based on management's current estimates.
Since inception, we have operated as a general partnership, and as a
result, have not been subject to federal or certain state income taxes.
Upon incorporation and the acquisition of the business of the general
partnership, we will become subject to federal and state income taxes.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from HBD's statements of income as a percentage of net sales. Any trends
reflected in the following table may not be indicative of future results.
Year Ended December 31, Six Months Ended June 30
1997 1998 1998 1999
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 73.3 77.8 81.1 86.8
------ ------ ------ -------
Gross profit 26.7 22.2 18.9 13.2
Marketing and selling expenses 13.1 9.9 9.4 5.5
General and administrative expenses 9.3 6.0 6.6 5.5
------ ------ ------ -------
Income from continuing operations 4.4 6.3 2.9 2.2
Non-operating (expense) income, net (0.1) 0.1 0.1 0.1
------ ------ ------ -------
Net Income before taxes 4.3% 6.4% 3.0% 2.3%
------ ------ ------ -------
COMPARISON OF 6 MONTHS ENDING JUNE 30, 1999 AND JUNE 30, 1998
Net sales (gross sales less product returns). Net sales increased
approximately 6% to $5.68 million for the six months ended June 30, 1999
from $5.38 million for the six months ended June 30, 1998. Net sales
increased due to growth in direct response media sales and services to
third party clients.
Gross profit. Gross profit decreased 26% to $0.75 million for the six
months ended June 30, 1999 from $1.0 million for the six months ended June
30, 1998. As a percentage of net sales, gross profit declined to 13.2%
for the six months ended June 30, 1999 from 18.9% for the six months ended
June 30, 1998. The decrease in gross profit dollars and gross profit as a
percentage of net sales is due to both an increase in amortization and
depreciation charges and an increase in net sales from direct response
media sales and services, which have a lower gross profit percentage than
our product sales.
Marketing and selling expenses. Marketing and selling expenses decreased
65% to $0.31 million for the six months ended June 30, 1999 from $0.51
million for the six months ended June 30, 1998. The decrease in marketing
and selling expenses is due to a reduction in telemarketing fees, credit
card processing charges and postage associated with a lower volume of
introductory product kits sold during the first six months of 1999 than
were sold during the same period of 1998. As a percentage of net sales,
marketing and selling expenses decreased to 5.5% from 9.4%.
General and administrative expenses. General and administrative expenses
decreased $40,818 or 13% to $0.31 million for the six months ended June
30, 1999 from $0.35 million for the six months ended June 30, 1998. As a
percentage of net sales, general and administrative expenses decreased to
5.5% for the six months ended June 30, 1999 from 6.6% for the six months
ended June 30, 1998.
Other non-operating items. Non-operating items accounted for
approximately 0.1% income for the six months ended June 30, 1998 and
approximately 0.1% income for the six months ended June 30, 1998. The
non-operating items did not have a significant effect on us during either
six-month period.
Provision for income taxes. During the first six months of 1999 and 1998,
we operated as a general partnership and as a result was not subject to
federal or certain state income taxes.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
Net sales (gross sales less product returns). Net sales increased 24% to
$9.55 million in the year ended December 31, 1998 from $7.69 million in
the year ended December 31, 1997. Net sales increased primarily due to
growth in direct response media sales and services to third party clients
to approximately $4,300,000 in 1998 from approximately $1,700,000 in 1997.
Gross profit. Gross profit increased 4% to $2.14 million in 1998 from
$2.06 million in 1997. As a percentage of net sales, gross profit declined
to 22.2% in 1998 from 26.7% in 1997. The increase in gross profit dollars
is due to higher net sales. The decrease in gross profit as a percentage
of net sales is primarily due to the increase in net sales from direct
response media sales and services which have a lower gross profit
percentage than HBD's product sales.
Marketing and selling expenses. Marketing and selling expenses decreased
5.8% to $0.95 million in 1998 from $1.01 million in 1997. The decrease in
marketing and selling expenses is due to a reduction in bad debt expense,
telemarketing fees, credit card processing charges and postage associated
with a lower volume of higher priced introductory product kits sold during
1998 than were sold during 1997. As a percentage of net sales, marketing
and selling expenses decreased to 9.9% in 1998 from 13.1% in 1997 due to
the increase in net sales in 1998.
General and administrative expenses. General and administrative expenses
decreased $142,133 or 24.9% to $0.57 million in 1998 from $0.71 million in
1997. As a percentage of net sales, general and administrative expenses
decreased to 6.0% in 1998 from 9.3% in 1997 reflecting the economies of
scale of our operating infrastructure associated with the our higher net
sales in 1998.
Other non-operating items. Non-operating items accounted for
approximately 0.1% income in 1998 and approximately 0.1% expense in 1997.
The non-operating items did not have a significant effect on us in either
year ending 1997 or year ending 1998.
Provision for income taxes. During 1998 and 1997 HBD was operated as a
general partnership and as a result was not subject to federal or certain
state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have met our operating and cash requirements
through funds generated from operations, vendor credit terms, a line of
credit from Bank of America and Venture Media Limited Partnership's
initial investment. We had cash and cash equivalents of $579,263 as of
June 30, 1999, $634,108 as of December 31, 1998 and $226,956 as of
December 31, 1997.
Net cash provided by operating activities in the year ended December 31,
1998 was $1.4 million, consisting primarily of net income adjusted for
noncash charges related to depreciation, amortization and provision for
bad debts, decreases in accounts receivable, prepaid expenses and
deposits, and an increase in advanced client media deposits, offset in
part by a reduction in accounts payable, accrued expenses, due to
affiliates, and the reserve for sales refunds and an increase in
inventory. At year ended December 31, 1998 we received advanced client
media deposits of $541,983 for direct response media sales and services to
be provided in January 1999 which were included in the cash balance and
accounted for as a current liability. Net cash provided by operating
activities in the year ended December 31, 1997 was $496,292, consisting
primarily of net income adjusted for noncash charges related to
depreciation, amortization and provision for bad debts, a decrease in
deposits, a net increase in current liabilities and an increase in the
reserve for sales refunds, offset by increases in accounts receivable,
inventory and prepaid expenses.
Cash used for investment in the production of marketing materials,
development of management information systems, purchases of direct
response advertising, disposal of fixed assets and expansion of property,
plant and equipment was $671,058 in 1998 and $626,947 in 1997. We plan to
continue to invest significant amounts on these various long-term assets
as necessary to expand our net sales.
Cash advanced to employees/affiliates for the year ended December 31, 1998
was $61,113, compared to cash received from employees/affiliates for the
year ended December 31, 1997 of $474,230. The amounts received during
1997 from employees/affiliates primarily consisted of cash held in bank
accounts and credit card processing facilities in the name of the general
partner, Venture Media Limited Partnership, which were changed during 1997
into HBD's name.
We believe that our cash on hand, together with cash generated by
operations and the net proceeds of this offering, will be sufficient to
meet our capital requirements through the end of the third quarter of
2000. The amount and timing of our future capital requirements will
depend on numerous factors including, without limitation, the costs and
timing of new product development and introduction, development and
expansion of our web site, potential strategic acquisitions or joint
ventures and the success of HBD's marketing, sales and distribution
efforts. As of December 31, 1997, we had a secured $500,000 revolving
inventory and receivable credit line at Bank of America. As of December
31, 1998, the credit line had been increased to $1,000,000. As of June
30, 1999, this bank line of credit has never been accessed since its
inception. There can be no assurance that if additional funds are
required they will be available to HBD on favorable terms, if at all
INFLATION
We do not believe that inflation, which has been limited for our entire
operating history, has had a material effect to date on our net sales or
results of operations.
SEASONALITY
We do not believe that seasonality has had a material effect to date on
our net sales or results of operations. Seasonality may have an influence
on our net sales or results of operation in the future because we may
provide our direct marketing services to clients whose products or
services have a seasonal nature.
YEAR 2000 COMPLIANCE
During 1998, we formed a Year 2000 Project Group to identify and address
Year 2000 compliance matters. Our systems have all passed the initial
testing. We have also received assurances from many of our suppliers that
they are or will become Year 2000 compliant in a timely manner. However,
in the event that any of our major suppliers fails to become Year 2000
compliant, we have developed a contingency plan to address the issues that
may arise as a result. We will continue to monitor and test our systems as
the year end approaches.
System evaluation, hardware and software upgrades and the development of
the contingency plan have cost approximately $60,000 to date. By year
end, a total of $75,000 in management time and resources may be spent to
ensure that our internal systems and those of key vendors will make a
smooth transition to the Year 2000.
BUSINESS
We market health and beauty-related products through direct to consumer
channels of distribution such as television, direct mail, the Internet and
radio. Our revenues are generated from sales of products that we own and
by providing direct to consumer marketing services for our clients' products.
Our business includes developing marketing campaigns, purchasing direct
response advertising and handling product fulfillment.
BACKGROUND OF THE BUSINESS
We started as a partnership in April of 1994, under the name Transforming
Cosmetics. HealthandBeautyDirect.com, Inc. is a Delaware corporation formed
on March 18, 1999 as a more suitable form of public ownership than the
current partnership. After the minimum number of shares is sold in this
offering, all of the assets and liabilities of Transforming Cosmetics will be
transferred to the corporation.
HBD's address is 2328 West Joppa Road, Suite 100, Baltimore, Maryland
21093. Our toll free telephone number is (800) 797-5335 and our fax
number is (800) 410-5858.
INDUSTRY OVERVIEW
In recent years, retailing in the United States has been rapidly shifting
to non-store retail sales or "direct to consumer sales," through such
media as direct mail catalogs, television, home shopping channels,
infomercials, and, recently, the Internet. In particular, the Internet has
experienced unprecedented growth in recent years and this growth is
expected to continue. According to the Boston Consulting Group, on-line
revenues generated by North American Retailers totaled $14.9 billion in
1998 and are expected to exceed $36 billion in 1999. And, according to
the International Data Corporation, the number of people who make
purchases over the Web will increase from 31 million in 1998 to more than
183 million in 2003.
These are the categories of products that we expect to market through our
multiple direct to consumer channels of distribution, along with the
estimates of the total annual sales for each category:
- - Beauty and Fashion which includes cosmetics, bath & body, skin care,
hair, fragrances, nails, etc.
$13 billion, Goldman Sachs Investment Research;
- - Exercise and Fitness which includes equipment, videos, health clubs,
etc.
$50 billion, Standard and Poor's Industry Reports;
- - Diet and Nutrition which includes vitamins, supplements, diet programs,
etc.
$30 billion, Center for Science in Public Interest;
- - Cosmetic Surgery which includes surgery for the face, eyes, neck, hair,
eyes, body, etc.
$2 billion, American society of Plastic & Reconstructive Surgeons; and
- - Health and Pharmacy which includes prescription/non-prescription
medicine, personal care, etc.
$100 billion, Standard and Poor's Industry Reports.
COMPETITION
We specifically compete through use of direct marketing techniques in the
health and beauty-related industry with various products that we market
and distribute. The health and beauty-related industry is fragmented and
highly competitive. Participants in the industry compete primarily on
price, quality, access to distribution, brand name recognition, image,
inventory availability and product performance. Within each of our
specific health and beauty-related product categories we compete against
many companies who may have longer operating histories, larger financial
resources, broader management depth, more sophisticated technology,
greater name recognition and access to various other critical resources.
Our direct marketing web site, HealthandBeautyDirect.com, is currently
under development and faces competition from numerous other web sites.
Some of these web sites include women.com, iVillage.com, drugstore.com,
planetrx.com, healthshop.com, phys.com, gloss.com, eve.com,
cosmeticscounter.com, reflect.com, mothernature.com, webmd.com and
drkoop.com. Hundreds of other competitive web sites currently exist; and
in the future, many new competitive web sites are likely to be developed.
Our web site may also indirectly compete with web retrieval and web portal
companies such as America Online, Yahoo, MSN, Infoseek and Excite, who
direct consumer traffic to many other competitors.
Our Linda Seidel Natural Cover product line of cosmetics competes in the
industry segment known as "corrective makeup." There are several
competitors in this segment. One competitor, Derma Blend, has greater
sales than Natural Cover and has successfully distributed its products
through various well-known retailers. In addition, most major cosmetic
companies provide a "concealer" line of foundation products targeted for
consumers with minor skin imperfections. Any one of these companies, or
some other business, could quickly become our direct competitor.
We expect that we will face additional competition from new market
entrants and current competitors as they expand their direct marketing
business models. To be competitive, we must respond promptly and
effectively to the challenges of technological change, evolving standards
and our competitors' innovations.
GENERAL BUSINESS STRATEGY
Our objective is to become the country's leading direct to consumer
marketer and distributor of health and beauty-related products. We plan
to accomplish this objective by:
- - capitalizing on our direct to consumer marketing expertise, which
includes the production of direct response videos and printed marketing
campaigns and the purchase of direct response advertising;
- - expanding our direct to consumer channels of distribution to include
sales through our Internet web site, service centers, medical professional
network and international markets;
- - building upon our cost effective integrated operating infrastructure;
and
- - developing marketing relationships with health and beauty-related
companies.
Detailed descriptions of these four steps are outlined below:
CAPITALIZING ON OUR DIRECT TO CONSUMER MARKETING EXPERTISE
Our primary channel of distribution is direct to consumer advertising
through cable and broadcast television, catalogues and direct mail. We
use direct to consumer marketing, rather than traditional retail
distribution because:
- - we can analyze and monitor the efficiency of advertising expenditures;
- - it is a low cost method to test and fine tune new product
introductions;
- - we can use our cost effective operational infrastructure to nationally
distribute consumer products;
- - we build and own a proprietary customer database for future marketing
efforts; and
- - we have direct interaction with customers to provide them with
exceptional customer service.
To efficiently execute our direct to consumer marketing strategy, we have
developed the capabilities to produce a variety of marketing materials
including television and radio commercials, video mailers, catalogues and
direct mail. In addition, we are also able to manage the associated
direct to consumer advertising campaigns. Traditionally, these services
are performed on a contract basis with outside third party vendors.
However, we execute many of these tasks in-house by utilizing our staff
and the services of free-lance professionals.
Production of direct to consumer marketing materials. Typically, a
marketer would contract with an advertising agency to develop, manage and
execute a marketing strategy for its products. The agency would in turn
hire writers, directors, producers, videographers, graphic designers,
photographers, printers and other professionals to produce the required
marketing materials. By bringing the development and management of the
marketing materials in-house and utilizing our network of free-lance
creative production professionals, we are able to produce effective
marketing materials at significantly lower costs, respond quickly to
changes in the marketplace and manage several projects simultaneously.
These creative and technical skills will be utilized to market and develop
our web site and service centers.
Media buying. The purchase of advertising is the single largest
expenditure associated with our business to date. Our media buying
strategy is made with a concentrated focus on each campaign's
profitability. We have developed a fully integrated approach to managing
each of our marketing campaigns including media buying, financial analysis
and project management. Our media team has over 20 years of combined
experience in the field of direct to consumer media management. We have
purchased advertising on every major national and regional cable station,
on hundreds of broadcast stations in all 50 states, and on various
nationally syndicated programs. Media is purchased in numerous weekday,
weekend and overnight time slots based on its availability and cost. We
maintain a comprehensive proprietary database of media costs and
performance results from our campaigns. A computer simulated financial
model of each direct to consumer campaign is developed to provide
management with appropriate financial reports and projections. It measures
the impact on our campaigns from the cost of media time, manufacturing,
credit card processing, telemarketing, fulfillment, returns, payments by
check and other unique costs of a project.
In addition, we have assembled a team of service providers to assist in
maintaining a cost effective operating structure. We have established and
maintained relationships with the industry leaders in the areas of tape
duplication and video trafficking, inbound telemarketing and credit card
processing. Media buying will be one of the key components to the success of
our business and we plan to expand our capabilities through a series of
personnel additions and limited strategic acquisitions.
EXPANDING OUR DIRECT TO CONSUMER CHANNELS OF DISTRIBUTION
We are expanding our customer database through development of multiple
direct to consumer channels of distribution including the Internet,
service centers, alternative channels and an international network. We
believe that by maintaining significant control over our channels of
distribution we have the ability to:
- - leverage investments in advertising and marketing programs across
multiple distribution channels to build national consumer brand names;
- - enhance customer satisfaction by offering greater accessibility and
providing professionally trained staff to interact directly with
customers in person or via the telephone; and
- - utilize information gathered from each channel of distribution to
develop and support the others.
Internet sales. The objective of our web site will be to provide our
customers with an efficient way to gain valuable information on numerous
products and services available in the health and beauty-related
industries and a cost effective means to purchase our products and
services through electronic commerce. The following categories of
products will be available to customers through HealthandBeautyDirect.com:
- - Beauty and Fashion
- - Exercise and Fitness
- - Diet and Nutrition
- - Cosmetic Surgery
- - Health and Pharmacy
- - Alternative Medicine
Our web site will offer electronic distribution of products and
information for:
- - owners of unique entrepreneurial health and beauty-related products who
typically do not have access to the traditional retail channels of
distribution;
- - major consumer product manufacturers who view the Internet as a
complementary channel of distribution to their existing retail
platform; and
- - specialized health and beauty-related service providers who would
benefit from a coordinated national direct to consumer marketing campaign.
Based on our internal development projections, we expect that sections of
our HealthandBeautyDirect.com web site will be completed and made
available for use by our customers within the next three months. The
execution steps for completion of our web site are:
- - completion of the graphic and navigational design;
- - implementation of the textual, audio, video and interactive elements;
- - technical development of the internal structure to transact e-commerce;
- - coordination with various information content providers; and
- - arranging for product and service providers.
During this offering, prospective investors will be able to view the
current stage of development for our web site by visiting
www.healthandbeautydirect.com. Once we have completed development of
sections of our web site and have made them available to our customers,
one of our most significant challenges will be to promote our web site. We
believe that our most cost effective mechanism for driving traffic to our
web site will be implementing various forms of direct to consumer
advertising.
Although Internet sales will represent only a small segment of our total
sales in the near future, marketing products directly to consumers through
other channels of distribution has enabled us to build the basic corporate
infrastructure necessary to capitalize on the business opportunity
presented by the Internet. Our preparation for effective use of the
Internet includes our approach to handling toll-free 800 and 888 number
customer service, management information systems, credit card processing
capabilities, development of video and print marketing materials, tracking
and analysis of effective advertising expenditures and flexible
entrepreneurial management. As the Internet continues to develop, and
more consumers accept it as a safe, convenient way to purchase goods, we
expect that sales through our web site will contribute significantly to
our overall direct to consumer channels of distribution.
SERVICE CENTERS. Our direct to consumer strategy includes building a
nationwide network of service centers to reach those consumers who
typically purchase their health and beauty-related products and services
through traditional retail channels of distribution rather than
television, direct mail, or the Internet. The average service center will
be located in a medical or office complex, require 750 square feet of
space and employ one service professional. Our service centers will
provide customers with a cost effective way to receive professional
consultations while experiencing our products first hand. Customers will
also be able to purchase products and receive a demonstration of how
products can be ordered at our web site or through one of our catalogs.
Customer names will be maintained in our proprietary database for future
marketing opportunities. Upon completion, this network will provide us
with a platform to introduce and test market new health and beauty-related
products. We currently operate one service center location.
ALTERNATIVE CHANNELS OF DISTRIBUTION. We currently distribute our products
to a network of over 600 plastic surgery and dermatology professionals in
the United States. This network provides us with an additional method of
selling our products and building a loyal customer database. Professionals
are furnished with informational videos and literature to distribute free
of charge to their patients. Patients may purchase products from their
medical professionals or they may order products directly from us via our
toll-free numbers. In addition, patients have direct access to our
trained staff from the privacy of their homes during their recovery
period.
INTERNATIONAL DIRECT RESPONSE DISTRIBUTION NETWORK. The demographic and
technological trends that are driving the retail consumer shift to non-
store shopping in the United States are also present in many international
markets. We currently sell products to wholesale accounts in the United
States who resell in Canada, Taiwan and Australia. In addition, we have
produced foreign language marketing materials targeted for the Hispanic
consumer market.
BUILDING UPON OUR COST EFFECTIVE INTEGRATED OPERATING INFRASTRUCTURE
We have developed a vertically integrated operating infrastructure with
sufficient flexibility to handle the intricacies of direct to consumer
marketing. Its effectiveness is based on our management information system
and specialized vendor relationships. We anticipate that as sales volume
increases, we will use our operating infrastructure over larger volumes of
business to reduce our marginal costs per order. As we expand our web
site, we will need to address the particular intricacies of conducting e-
commerce.
We have developed a proprietary management information system that
integrates our order entry, credit card processing and product fulfillment
operations. The key features are described below:
Proprietary customer database. Our proprietary customer database contains
a profile of each customer detailing such information as mailing address,
telephone number, credit card number and payment history. In addition, it
provides relevant personal information on product usage, order history,
marketing source codes and notes of prior contacts with the customer made
by phone, fax or mail. After an order has been entered into the database,
it is processed, invoiced and printed for product fulfillment.
Electronic credit card processing. Our management information system
downloads orders daily from several inbound telemarketing firms located
throughout the country. A credit card processor verifies and authorizes
the customer's credit card charges. The verified credit card information
is transmitted back from the credit card processor and updates our
customer database. The funds are then electronically transferred to our
bank accounts, typically within three business days.
Inbound telemarketing. One of our direct response television campaigns
can generate from 50 to 2,000 calls per commercial. We have contracted
with inbound telemarketing vendors across the country to ensure that when
customer call volumes are highest, customer information and orders can be
captured successfully. We have also enlisted the services of vendors for
customers who require Spanish speaking operators.
Customer service. We provide our customers with toll-free telephone
access to our in-house customer service department. During non-business
hours callers are invited to select the option of placing orders with an
express order processing service provided by a third party vendor. In-
house customer service representatives can process orders directly into
our proprietary management information system. The representatives are
authorized to resolve most customer service issues immediately, including
technical product advice, billing questions, product exchanges and issuing
return authorizations.
Manufacturing. HBD subcontracts with a variety of domestic and
international companies for the manufacture of our packaging and products.
Products are developed and manufactured according to our own
specifications. In-house specialists work with chemists to produce new
products based on input received directly from customers who use our
products personally and professionally.
Warehousing. We maintain a warehouse facility that houses our product and
finished goods inventories. As customer orders are received, we pick and
pack the products for shipment in accordance with the customer's delivery
schedule.
Shipping. Our management information system processes customer orders and
generates an invoice that is sent to fulfillment for assembly and
shipment. The system is specifically designed with a number of quality
control features to help ensure the accuracy of each order. Since the UPS
strike in 1997, substantially all of the shipments have been transferred
to the USPS Priority Mail Service. Federal Express, Airborne and Express
Mail overnight services are available by request.
DEVELOPING MARKETING RELATIONSHIPS WITH HEALTH AND BEAUTY-RELATED
COMPANIES
One of our principle objectives is to build a portfolio of unique health
and beauty-related products. To accomplish this objective, we intend to
pursue partnerships, joint ventures and licensing agreements with
entrepreneurs who have developed these types of products. We believe that
HBD will be an attractive partner for many of these entrepreneurs because
of the experience our management team has gained by successfully building
the Linda Seidel Natural Cover cosmetics brand.
Our first partnership began with the acquisition of the marketing rights
to distribute the Linda Seidel line of cosmetic products. These products
consisted of Natural Cover foundation concealers, glamour enhancers and a
skin conditioning system. The entrepreneurs had been in business for
approximately fifteen years and had annual sales of less than $400,000. By
implementing our direct to consumer marketing techniques, we have built
their business to over $4,000,000 in annual sales for both calendar years
1997 and 1998. In addition to providing our marketing expertise, we offer
entrepreneurs:
- - access to multiple direct to consumer channels of distribution;
- - direct to consumer marketing expertise;
- - a vertically integrated operating infrastructure;
- - capital to develop, advertise and build their line of products; and
- - the ability to cross-market their products to our existing customer
database.
We have provided direct to consumer marketing services to clients who
market an acne treatment system, an air bed mattress and vitamin
supplements. We are in discussions with specific entrepreneurs to test-
market and distribute their products, including a dermatologist developed
skin care product, a specialty line of fragrances, a bath and body
treatment system and a cosmetic plastic surgery network.
EMPLOYEES
As of June 30, 1999, we had 14 full-time and 8 part-time employees. At
various times during the year temporary employees are utilized for
fulfillment and administrative functions. None of our employees is
currently covered by collective bargaining agreements. We consider our
employee relations to be good.
FACILITIES
We currently operate a 2,635 square foot office facility and a 2,700
square foot warehouse distribution facility in Baltimore, Maryland. The
office facility is under a lease that expires June 30, 2004 and the
warehouse distribution facility lease expires June 30, 2000. Both leases
contain renewal options and the office facility lease contains a
termination option on June 30, 2002 at the request of HBD. These
facilities include our warehousing and fulfillment operations, customer
service, management information systems, marketing and administrative
offices. We also maintain a month-to-month office sublease in Herndon,
Virginia.
REGULATORY MATTERS
Our products and marketing and advertising practices are subject to
regulation by various federal, state and local regulatory authorities,
including the Federal Trade Commission, Federal Communications Commission
and the U.S. Food and Drug Administration. We are also subject to other
federal, state, and local regulatory requirements, including federal,
state and local environmental regulations issued by the U.S. Occupational
Safety and Health Administration. As we begin to market a broader
variety of products and services, we may become subject to regulation by
agencies other than those listed above. The effect of an alleged violation
of any of these regulations could cause a major change in or
discontinuance of our business. Since we currently do no manufacturing,
processing or packaging, we have not encountered any significant
environmental law compliance issues.
We collect sales and use taxes on sales to residents in Maryland only.
Opening of service centers in other states may necessitate collection of
taxes on sales to their residents. After the current three-year
Congressional moratorium, one or more states may seek to impose sales and
use tax collection obligations on out-of-state companies such as ours,
which engage in electronic commerce. If we were required to collect
additional sales or use taxes, it would increase our administrative costs.
State tax authorities could conduct a nexus audit of HBD, which could give
rise to a retroactive assessment for tax liabilities. State sales and use
tax laws typically provide for a lengthy statute of limitations, and any
assessment amount could be damaging.
LEGAL PROCEEDINGS
We are periodically involved in legal proceedings or litigation incident
to the ordinary course of our business operations. Our business exposes us
to potential product liability risks that are inherent in the marketing
and sale of health and beauty-related products. We are not a party to any
litigation or other legal proceeding that, in the opinion of management,
could have a material adverse effect on our business, financial condition
or results of operations. In the past, securities class action litigation
has often been brought against a company following periods of volatility
in the market price of their securities. We may in the future be the
target of similar litigation. Securities litigation could result in
substantial costs and divert management's attention and resources.
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS
HBD's executive officers, directors and principal shareholders of the
General Partner of Venture Media Limited Partnership, and their ages, as
of December 31, 1998 are as follows:
Brian Fraidin 34 Chief Executive Officer,
Chief Financial Officer, Director
David Dougherty 49 Director, Shareholder,
General Partner of Venture Media Limited
Partnership
Ananth Krishnamurthy 33 Shareholder,
General Partner of Venture Media Limited
Partnership
Alejandro Mendoza 42 Management Information Systems Director
Vipul Munjal 32 Comptroller
Marion Jacques 34 Hispanic Marketing Director, Secretary
Steven Zwagil 41 Director
Todd Foreman 34 Director
Linda Seidel 50 Director
All officers are expected to work for us approximately forty hours per
week. Each director serves for a period of one year. The current
directors have served since the filing of this prospectus and will serve
until the meeting of the shareholders in the year 2000.
BRIAN FRAIDIN has served as Chief Executive Officer since April 1994 and
is a Director of HBD. In this capacity Mr. Fraidin provides strategic,
marketing and financial planning direction for the business and is
responsible for overseeing all day-to-day operations. He is President of
VenTech, Inc., the General Partner of Venture Media Limited Partnership,
the majority shareholder of HealthandBeautyDirect.com, Inc. Venture Media
Limited Partnership is a private equity fund based in Baltimore, Maryland.
Mr. Fraidin is a 1986 graduate of the University of Pennsylvania,
Wharton School of Finance. He earned his CPA in 1986 and graduated from
University of Baltimore Law School with a Juris Doctor degree in 1997.
DAVID DOUGHERTY is a Director of HBD and shareholder of VenTech, Inc., the
General Partner of Venture Media Limited Partnership. Venture Media
Limited Partnership is the majority shareholder of
HealthandBeautyDirect.com, Inc. Since 1991, he has been a Partner in
Dougherty and Company, Inc., a firm providing U.S. mergers, acquisitions
and general corporate finance advice to U.S. and international firms and
entrepreneurs. Mr. Dougherty's career, which spans more than 25 years,
includes senior level positions with Kidder, Peabody and Company, Inc. and
Bankers Trust Company. At Bankers Trust Company from 1980-1990 his
positions included Managing Director and Head of the Mergers and
Acquisitions and Merchant Banking groups. At Kidder, Peabody he was Vice
President of Public Finance through 1980. Mr. Dougherty is a 1971 graduate
of Georgetown University and holds a Juris Doctor degree from Temple
University.
ANANTH KRISHNAMURTHY is a shareholder of VenTech, Inc., the General
Partner of Venture Media Limited Partnership. Venture Media Limited
Partnership is the majority shareholder of HealthandBeautyDirect.com, Inc.
He is currently involved in the investment banking industry, responsible
for structured finance transactions with US corporations in the context of
corporate mergers and restructurings. Between 1991-1995, Mr.
Krishnamurthy held senior positions with Wasserstein Perella & Co. and The
Goldman Sachs Group where he was involved in the investment banking
industry, including strategic, transactional and financing aspects of
mergers and acquisitions engagements. He is a 1987 graduate of the
University of Pennsylvania, Wharton School of Finance and received his MBA
from The Wharton School in 1988.
ALEJANDRO MENDOZA has served as Management Information Systems Director
since April 1994. He is responsible for coordinating the development and
maintenance of all aspects of our customer database management, order
processing and fulfillment systems. Mr. Mendoza received his Masters of
Science in computers and graphic design from The Pratt Institute of New
York in 1986 and graduated from the University of Florida, Gainesville in
1978.
VIPUL MUNJAL has served as Comptroller since June 1995. He is responsible
for overseeing all accounting and financial analysis for HBD. From 1993 to
May 1995, Mr. Munjal served as the Assistant Comptroller for National
Shipping Company of Saudi Arabia America, Inc., where he provided
accounting and financial planning for a variety of international
transactions. Mr. Munjal received his MBA from University of Baltimore in
1993 and is a 1991 graduate of Edinboro University of Pennsylvania.
MARION JACQUES has served as Hispanic Marketing Director since November
1996 and is the Secretary for HBD. She is responsible for coordinating
efforts with wholesale accounts in the United States who resell our
products internationally and overseeing our domestic Hispanic marketing
efforts. From 1989 to October 1996, Ms. Jacques was employed at SunTrust
Bank, Miami where she served as Vice President in the commercial real
estate lending division. In such capacity she participated in loan
origination, underwriting, presentation to credit committee and
construction project oversight. Ms. Jacques is a 1987 graduate of the
University of Pennsylvania, Wharton School of Finance.
STEVEN ZWAGIL is a Director of HBD and Chairman of the Audit Committee. In
this capacity he will oversee our auditing procedures and strategic
financial planning for the business. From 1998 to the present, Mr. Zwagil
has served as the Chief Financial Officer for DPI Business Information
Systems. From 1996 to 1997, he served as Chief Financial Officer of
Fidelity First Financial Corporation. Mr. Zwagil was a senior partner with
the accounting firm of Levin, Zwagil & Block, P.A. from 1988 to 1996 where
he was responsible for the firm's litigation support, business valuation
and taxation groups. He has been a practicing Certified Public Accountant
since 1980.
TODD FOREMAN is a Director of HBD and Chairman of the Compensation
Committee. In this capacity he will review our compensation, benefit and
stock option plans. From 1993 to the present, Mr. Foreman has been the
Chief Financial Officer for United Communications Group, a business
information services company based in Rockville, Maryland. He is a 1986
graduate from Emory University, earned his CPA in 1987 and received his
MBA from George Washington University in 1995.
LINDA SEIDEL is a Director of HBD. Ms. Seidel has been employed full-time
as spokesperson for the Linda Seidel Natural Cover cosmetic brand for the
past five years. She is prominently featured in the printed marketing
materials and television advertisements. She lectures frequently
throughout the country and has an extensive network of relationships with
professionals in the medical and cosmetics field. She has been personally
assisting clients through the use of corrective make-up and application
techniques for over 25 years and is a licensed cosmetician.
DIRECTOR COMPENSATION
Directors who are officers or employees of HBD or any subsidiary of HBD
will receive no additional compensation for serving on the Board of
Directors or any of its committees. Upon the closing of this offering,
directors who are not executive officers of HBD will receive an option to
purchase 5,000 shares of common stock for a purchase price equal to 100%
of the fair market value of the stock on the date of grant. Each option
is expected to have a term of 3 years and to vest in 3 equal installments
beginning on the first anniversary of the date of the grant. Directors
who are not executive officers of HBD will receive a single annual
retainer of $2,500 for service on HBD's Board and may receive an
additional fee for serving as chair on one of the committees of the Board
of Directors. All directors will be reimbursed for travel expenses
incurred in connection with attending board and committee meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon completion of the offering, HBD's Board of Directors will establish
an Audit Committee and a Compensation Committee. Each committee will
consist of at least two directors, neither of whom will be an officer or
employee of HBD.
The members of the Audit Committee will be Steven Zwagil, Todd Foreman and
Brian Fraidin. Their duties will be the following:
- - recommend the selection of independent certified public accountants to
the entire Board of Directors;
- - perform an audit of the financial statement of HBD;
- - review the activities and report of the independent certified public
accountants;
- - report the results of such review to the entire Board of Directors; and
- - monitor the internal controls of HBD.
The members of the Compensation Committee will be Todd Foreman, Steven
Zwagil and David Dougherty. The duties of the Compensation Committee will
be to provide a general review of HBD's compensation and benefit plans to
ensure that they meet corporate objectives and to administer or oversee
HBD's stock option plan and other employee benefit plans. In addition, the
Compensation Committee will review the compensation of the officers of
HBD, the recommendations made by the chief executive officer regarding
compensation of all HBD employees and any major changes in HBD's
compensation policies and practices.
STOCK OPTION PLAN
We expect to adopt an incentive stock option plan for our employees,
officers, directors and consultants. We have reserved 1,000,000 shares
for issuance on exercise of these options, which is 14% of the shares that
will be outstanding upon sale of the minimum in this offering. Options
must have an exercise price of at least 85% of the fair market value of
the shares on the date the options were granted.
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS.
Our Certificate of Incorporation and Bylaws substantially limit the
personal liability of our officers and directors. They also require
indemnification and advance payment of expenses incurred in defending any
claim. These provisions could make it more difficult for shareholders to
recover any losses on their investment from claims against our officers or
directors.
EXECUTIVE COMPENSATION
We have not paid any of our employees or directors more than $100,000 a
year. Brian Fraidin, the president of the General Partner of Venture
Media Limited Partnership, the predecessor's majority partner, has served
as our acting chief executive officer since 1994. His management services
have been provided in return for distributions made by HBD to Venture
Media Limited Partnership. During 1998 and 1997 the distributions were
$243,535 and $24,336, respectively. No separate amount was paid to Mr.
Fraidin or to Venture Media Limited Partnership in return for management
services.
Executive management services provided to HBD will be covered by a
management services agreement with Direct Marketing Services Group, LLC.
This entity is owned by Brian Fraidin and various partners of and advisors
to Venture Media Limited Partnership who have provided management services
to us in the past. Through this agreement, they will continue to provide
executive management services in the future. HBD will pay Direct
Marketing Services Group, LLC $175,000 for services to be provided for the
twelve (12) months following the closing of this offering. The management
services agreement will be automatically renewed annually under similar
terms and conditions subject to approval of HBD and Direct Marketing
Services Group, LLC. The nature of services provided and compensation
will be determined and approved by directors of HBD who are independent of
Direct Marketing Services Group, LLC.
EMPLOYMENT AGREEMENTS
We have an employment services agreement with Ms. Linda Seidel, a director
of HBD. It is our only employment agreement. Ms. Seidel's employment
services agreement ends on December 31, 2003 and may be renewed for an
additional 5 year term. Ms. Seidel receives compensation in the form of a
base salary of $65,000 per year, appearance fees for seminars and makeup
consultation fees. Ms. Seidel, through her management company, Corky,
Inc., also owns 350,000 shares of common stock in HBD. As a director of
HBD, Ms. Seidel is entitled to benefits that HBD's Board of Directors or
its Compensation Committee may determine.
CERTAIN TRANSACTIONS
Upon sale of the minimum number of shares in this offering, a total of
7,000,000 shares will be issued in exchange for all the partners' right in
the predecessor business, Transforming Cosmetics. The partners' names and
the shares to be issued to them are: Venture Media Limited Partnership,
6,335,000 shares, Corky, Inc., 350,000 shares and World Net
Communications, LLC, 315,000 shares. Of the shares distributed to Venture
Media Limited Partnership, 1,522,784 were distributed directly to 35 of
its limited partners.
Our founders will receive substantial benefits from this offering,
including a possible public trading market for their shares. They will
receive shares at costs substantially below the offering price, as shown
in the "Dilution" section of the prospectus. Upon completion of this
offering we will seek to restructure our lines of credit with Bank of
America which may result in the release of personal guarantees of the
founders.
During 1998 and 1997, we made distributions of $243,535 and $24,336,
respectively, to Venture Media Limited Partnership. Executive management
services will be provided by Direct Marketing Services Group, LLC as
covered by a management services agreement. This entity is owned by
various partners of and advisors to Venture Media Limited Partnership who
have provided us with management services in the past. HBD will pay
Direct Marketing Services Group, LLC $175,000 for services to be provided
for the twelve months following the closing of this offering. The
agreement will be automatically renewed annually under similar terms and
conditions subject to approval by both parties.
During 1998, we made accrued royalty payments to Ms. Linda Seidel of
$80,000 and purchased certain direct response media buying assets from the
partners of Venture Media Limited Partnership for $200,000. During 1997,
we sold approximately $1,700,000 in direct response media at approximately
cost to clients of Venture Media Limited Partnership. The General Partner
of Venture Media Limited Partnership, VenTech, Inc., and Brian Fraidin are
guarantors on our $1,000,000 revolving line of credit with Bank of
America. In addition, various limited partners of Venture Media Limited
Partnership have historically provided vendor services to HBD. These
vendor services have included computer design, video production, leasehold
improvements, short-term financing, legal counsel, office cleaning and
printing. In our financial statements, we have accounted for these vendor
services as expenses in the ordinary course of business. We believe that
these related party transactions were on terms at least as favorable to
HBD as those available from non-related parties.
We were a partnership at the time of these transactions, so they were not
ratified by any independent corporate directors. After sale of the
minimum in this offering, we will maintain at least two independent
directors on our board. All future material affiliated transactions and
loans, and any forgiveness of loans, will be made or entered into on terms
that are no less favorable to HBD than those that can be obtained from
unaffiliated third parties. They must all be approved by a majority of
our independent directors who do not have an interest in the transactions
and who had access, at our expense, to HBD's or independent legal counsel.
PRINCIPAL SHAREHOLDERS
The following table shows information about the ownership of HBD's common
stock. The table reflects the issuance of the 7,000,000 shares to be
issued to existing partners at the time the minimum is sold and is
presented for both the minimum and maximum sale of shares in this
offering. The information is provided with respect to:
- - each person who is known by HBD to own beneficially more than five
percent of HBD's common stock;
- - each of HBD's officers and directors; and
- - all officers and directors as a group.
Except as otherwise indicated, to the knowledge of HBD, each person listed
has sole voting power and investment power with respect to the common
stock they beneficially own.
Minimum sold in offering Maximum sold in
Offering
Name and Address of Number of Percent Number of Percent
Beneficial Owner Shares Owned Owned Shares Owned Owned
------------ ------- ------------- -------
Venture Media
Limited Partnership (1) 4,812,216 67.90% 4,812,216 64.16%
3406 Fielding Road
Baltimore, MD 21208
Corky, Inc. (2) 350,000 4.94% 350,000 4.67%
2311 Falls Gable Lane
Baltimore, MD 21209
Alejandro Mendoza (3) 36,773 0.52% 36,773 0.53%
Roberto del Rio 1839
Providencia, Santiago, Chile
Vipul Munjal (4) 16,083 0.23% 16,083 0.21%
29 Winter Berry Court
Hunt Valley, MD 21030
Marion Jacques (5) 16,083 0.23% 16,083 0.21%
7200 SW 110th Terrace
Pinecrest, FL 33156
Steven Zwagil (6) 14,911 0.22% 14,911 0.20%
2215 Sugarcone Road
Baltimore, MD 21209
Todd Foreman (7) 34,195 0.48% 34,195 0.46%
10736 Brewer House Road
Rockville, MD 20852
Brian Fraidin (8) 0 0.00% 0 0.00%
3406 Fielding Road
Baltimore, MD 21208
David E. Dougherty (9) 0 0.00% 0 0.00%
2 Fairway Lane
Greenwich, CT 06830
Linda Seidel (10) 0 0.00% 0 0.00%
2311 Falls Gable Lane
Baltimore, MD 21209
All Officers
and Directors (11) 5,280,263 74.54% 5,280,263 70.40%
as a group (8 persons)
(1) Messr.'s Fraidin, Dougherty and Krishnamurthy are the principal
shareholders of the General Partner of Venture Media Limited
Partnership,the majority shareholder of HBD. They are the only principals
holding in excess of 5%.
(2) Ms. Linda Seidel is the president and the principal shareholder of
Corky,Inc.
(3) Mr. Alejandro Mendoza is the director of Management Information
Services for HBD.
(4) Mr. Vipul Munjal is the comptroller for HBD.
(5) Ms. Marion Jacques is the director of Hispanic Marketing and Secretary
for HBD.
(6) Mr. Steven Zwagil is a director of HBD.
(7) Mr. Todd Foreman is a director of HBD.
(8) Mr. Brian Fraidin is the chief executive officer and a director of
HBD. Does not include beneficial ownership of shares owned in the General
Partner of Venture Media Limited Partnership.
(9) Mr. David Dougherty is a director of HBD. Does not include beneficial
ownership of shares owned in the General Partner of Venture Media
Limited Partnership.
(10) Ms. Linda Seidel is a director of HBD. Does not include beneficial
ownership of shares in Corky, Inc.
(11) Includes beneficial ownership of shares as described in the notes
above.
As shown by this table, Venture Media Limited Partnership will continue,
after this offering, to own or control in excess of 50% of the common
stock of HealthandBeautyDirect.com. Venture Media Limited Partnership
will be in a position to elect our Board of Directors and officers,
control the operations of the business and determine the outcome of
matters submitted for shareholder approval, including mergers,
consolidations, the sale of assets or a change in control of HBD.
DESCRIPTION OF CAPITAL STOCK
The following summary description of HBD's capital stock is qualified in
its entirety by reference to HBD's Certificate of Incorporation and
Bylaws, copies of which are filed as exhibits to the registration
statement of which this prospectus is a part. HBD's authorized capital
stock consists of 9,800,000 shares of common stock, $0.01 par value per
share, and 200,000 shares of preferred stock, $0.01 par value per share.
COMMON STOCK
Upon sale of the minimum in this offering, it is expected that the
7,000,000 shares of common stock will be issued in exchange for the
contribution of the business. These shares will be held by 40 persons of
record. There will be 7,083,334 shares of common stock outstanding if the
minimum is sold in this offering and 7,500,000 shares outstanding if the
maximum is sold.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. They are entitled to
receive their proportion of any dividends as may be declared from time to
time by the Board of Directors out of legally available funds, subject to
preferences that may be applicable to any preferred stock outstanding at
the time. Common shareholders are entitled to share proportionately in
all assets remaining after payment of HBD's liabilities and the
liquidation preference, if any, of any outstanding shares of preferred
stock in the event of a liquidation, dissolution or winding up of HBD.
Common shareholders have no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All the shares of common stock now
outstanding are, and the shares to be issued in this offering will be
fully paid and nonassessable. The rights, preferences and privileges of
holders of common stock are subject to, and may be adversely affected by,
the rights of holders of shares of any series of preferred stock that HBD
may designate and issue in the future.
PREFERRED STOCK
No shares of preferred stock have been issued and HBD's Board of Directors
does not presently intend to issue preferred stock. The Board has the
authority to issue up to 200,000 shares of Preferred stock in one or more
series and to fix the shares' rights, including dividend rights,
conversion rights, voting rights, redemption terms, liquidation
preferences and the number of shares in each series, without any further
vote or action by HBD's shareholders. The issuance of Preferred stock
could have one or more of the following effects:
- - restrict common stock dividends if preferred stock dividends have not
been paid;
- - dilute the voting power and equity interest of holders of common stock
to the extent that any series of preferred stock has voting rights or is
convertible into common stock; or
- - prevent current holders of common stock from participating in HBD's
assets
upon liquidation until any liquidation preferences granted to holders
of preferred stock are satisfied.
In addition, the issuance of preferred stock may, under certain
circumstances, have the effect of delaying, deferring or preventing a
change in control of HBD. For example, granting voting rights to holders
of preferred stock that require approval by the separate vote of the
holders of preferred stock for any amendment to the certificate of
incorporation or any reorganization, consolidation, merger or other
similar transaction involving HBD could result in such a situation. As a
result, the issuance of preferred stock may discourage bids for HBD's
common stock at a premium over the market price and could have a material
adverse effect on the market value of the common stock. We will not issue
any preferred stock without either a vote of the common stock shareholders
or approval by a majority of our independent directors who do not have an
interest in the transaction and who have access, at our expense, to HBD's
or independent legal counsel.
CERTAIN PROVISIONS OF DELAWARE LAW
HBD will be subject to the "Business Combination" provisions of the
Delaware General Corporation Law. In general, they prohibit a publicly
held Delaware corporation from engaging in various "business combination"
transactions with any "interested shareholder" for a period of three years
after the date of the transaction in which the person became an
"interested shareholder," unless
- - the transaction is approved by the Board of Directors prior to the date
the "interested shareholder" obtained that status;
- - upon consummation of the transaction which resulted in the shareholder
becoming an "interested shareholder," the "interested shareholder"
owned at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced, excluding for purposes
of determining the number of shares outstanding those shares owned by
persons who are directors and also officers, and employee stock plans
in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered
in a tender or exchange offer; or
- - on or subsequent to such date the "business combination" is approved by
the Board of Directors and authorized at an annual or special meeting
of shareholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock, which is not owned by the "interested
shareholder."
A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a shareholder. In
general, an "interested shareholder" is a person who, together with
affiliates and associates, owns, or within three years, did own 15% or
more of a corporation's voting stock. The statute could prohibit or delay
mergers or other takeover or change in control attempts and, accordingly,
may discourage attempts to acquire HBD.
LIMITATION AND INDEMNIFICATION OF LIABILITY OF OFFICERS AND DIRECTORS
HBD's Certificate of Incorporation provides that, to the fullest extent
permitted by Delaware corporation law, a director of HBD will not be
personally liable to HBD or its shareowners for money damages for breach
of fiduciary duty as a director. The certificate also allows HBD to
indemnify, to the fullest extent permitted by law, any of its directors,
officers and employees, as well as anyone serving as a director or officer
of another enterprise at HBD's request. HBD's Bylaws provide that HBD
shall, to the maximum extent permitted by Delaware corporation law,
indemnify each of its directors and officers, including persons who serve
at its request as directors or officers of another enterprise, against
expenses including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with any
threatened, pending or completed proceeding in which the person was or is
a party or is threatened to be made a party because of being a director or
officer. HBD is required to pay the expenses, including attorney's fees,
incurred by a director or officer in connection with the defense or
disposition of any proceeding, in advance of the final disposition, if the
person agrees to repay them and it is ultimately determined that the
person was not entitled to indemnification. HBD's Bylaws also permit it
to indemnify other employees and agents of HBD, including persons who
serve at its request as employees or agents of another enterprise. HBD
has been informed that, in the opinion of the Securities and Exchange
Commission, any indemnification for liabilities arising under the
Securities Act is unenforceable, as against public policy expressed in the
Securities Act.
TRANSFER AGENT
The transfer agent for HBD's securities will be The Registrar and Transfer
Company with offices located in Cranford, New Jersey.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for HBD's
securities. The shares have been approved for listing on the Chicago Stock
Exchange after completion of this offering. We cannot make a prediction
as to the effect, if any, that market sales of shares of common stock or
the availability of shares for sale will have on the market price of the
common stock prevailing from time to time. Nevertheless, sales of
substantial amounts of common stock in the public market, including any
sales after the lapse of the restrictions described below, could adversely
affect the prevailing market price and the ability of HBD to raise equity
capital in the future.
Upon completion of the offering, HBD would have 7,083,334 shares of common
stock outstanding if the minimum was sold and 7,500,000 if the maximum was
sold. Shares sold in this offering will be freely tradable without
restriction under the Securities Act, except for any shares which may be
acquired by an "affiliate" of HBD, as that term is defined in Rule 144
under the Securities Act. Any shares acquired by an affiliate will be
subject to the volume limitations and other restrictions of Rule 144
described below. An aggregate of 5,595,263 shares of common stock held by
existing shareholders of HBD upon completion of the offering will be
"restricted securities" as that phrase is defined in Rule 144, and may not
be resold in the absence of registration under the Securities Act or an
exemption from registration, including the exemption provided by Rule 144.
In general, under Rule 144 a person, or persons whose shares are
aggregated, who has beneficially owned shares for at least one year is
entitled to sell within any three-month period, beginning 90 days after
the date of this prospectus, a number of shares that is not more than the
greater of 1% of the then-outstanding shares of common stock and the
average weekly trading volume during the four calendar weeks preceding the
sale. Owners of restricted securities who have not been affiliates of HBD
at any time during the 90 days immediately preceding their sale, who have
beneficially owned their shares for at least two years may sell those
shares pursuant to Rule 144(k) without regard to the limitations described
above. Affiliates must always sell pursuant to Rule 144, even after the
applicable holding periods have been satisfied. HBD is unable to estimate
the number of shares that will be sold under Rule 144, which depends on
the market price of the common stock, the personal circumstances of the
sellers and other factors.
The three largest shareholders of common stock have entered into a "lock-
in agreement" with HBD, further restricting the sale or other transfer of
their shares for a period of 2 years after the completion of this
offering. A total of 5,477,216 shares of common stock are subject to this
agreement. None of these shares can be transferred during the first year
after completion of this offering. During the second year after
completion of this offering, an aggregate of 2 r% of these shares may be
sold or transferred during each calendar quarter.
PLAN OF DISTRIBUTION
We propose to offer and sell the shares directly to members of the public
residing in selected states. Announcements of this offering, in the form
prescribed by Rule 134 of the Securities Act, will be communicated to
selected persons who are customers or have other relationships with HBD or
its officers and who reside in certain parts of the United States. We
will deliver a copy of this prospectus to those who request it, together
with the share purchase order. Assuming the maximum share price, all
shares will be sold at the public offering price of $12.00 per share and a
minimum purchase of 50 shares is required. We reserve the right to reject
any subscription or share purchase agreement in full or in part. The
persons shown in the prospectus under "Principal Shareholders" have the
right to purchase shares for the purpose of meeting the impound
agreements. All of those shares would be subject to the "lock-in
agreement" described in the previous section of this prospectus, "Shares
Eligible for Future Sale."
HBD will effect offers and sales of shares only through Brian M. Fraidin,
its chief executive officer, who has not previously participated in
effecting offers and sales in a public offering. Only Mr. Fraidin will
sign acceptances of share purchase orders on behalf of HBD and he will be
the only individual to conduct activities that involve making oral
solicitations or approval of written communications. Under Rule 3a4-1 of
the Exchange Act, Mr. Fraidin will not be deemed a "broker," as defined in
the Exchange Act, solely by reason of participation in this offering,
because:
1. he is not subject to any of the statutory disqualifications set forth
in Section 3(a)(39) of the Exchange Act;
2. in connection with the sale of the shares being offered, he will not
receive, directly or indirectly, any commissions or other
remuneration
based either directly or indirectly on transactions in securities;
3. he is not an associated person (partner, officer, director or
employee)
of a broker or dealer; and
4. he meets all of the following conditions:
4.1 primarily performs substantial duties for HBD otherwise than in
connection with transactions in securities;
4.2 was not a broker or dealer, or as an associated person of a
broker
or dealer, within the preceding 12 months; and
4.3 will not participate in selling an offering of securities for
any issuer more than once every 12 months.
The methods to be employed in the solicitation of potential investors
include printed and electronic announcements to our customer database,
distribution of the prospectus via the Internet, personal meetings with
business contacts of existing investors, follow-up by telephone with
interested parties and other announcements of the "tombstone" variety.
DETERMINATION OF OFFERING PRICE
Because there has been no market for the common stock of HBD, the public
offering price has been determined by HBD's Board of Directors. This
price per share also reflects the value of the shares to be issued to the
former general partners of Transforming Cosmetics upon sale of the minimum
in this offering. Among the factors considered were HBD's results of
operations, its current financial condition, its future prospects, the
state of the markets for its products and services, the experience of
management and the economics of the industry segment in general. There can
be no assurance that an active trading market will develop for our common
stock or that our common stock will trade in the public market subsequent
to this offering at or above the initial public offering price.
ESCROW OF MINIMUM PROCEEDS
We are making this offering on a minimum/maximum basis subject to
subscription and payment for not less than the minimum 83,334 shares and
not more than the maximum 500,000 shares. All subscription payments will
be deposited into an escrow account at Bank of America. If the minimum is
not sold in this offering by the termination date, all proceeds deposited
in the escrow account will be promptly refunded in full, with interest,
but without any deduction for expenses.
During the escrow period, all subscription payments for shares must be
delivered with a completed share purchase order to the escrow agent. HBD
will mail a copy of the share purchase order to each purchaser within
fifteen business days of acceptance by HBD. Stock certificates will not
be issued to subscribers until the minimum has been sold. Until then,
purchasers will be subscribers and not security holders of HBD. During
the escrow period, subscribers will have no right to a return of their
payment.
After the minimum has been fully subscribed, HBD will continue to offer
the shares, not subject to payment for any further minimum amount, but not
for more than a total of 500,000 shares. This offering will end upon the
earlier of the following: the sale of the maximum amount, March 31, 2000
or the date on which HBD decides to close the offering. HBD reserves the
right to reject any subscription or share purchase agreement in full or in
part and to terminate the offering at any time prior to the sale of all
the shares being offered.
LEGAL MATTERS
The validity of shares of common stock offered will be passed upon for HBD
by Whiteford, Taylor & Preston LLP.
EXPERTS
The financial statements of HBD as of December 31, 1998 and December 31,
1997 have been included in this prospectus and elsewhere in the
registration statement in reliance on the audit reports of Naden/Lean,
LLC, independent certified public accountants, given on the authority of
such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form SB-2 under the Securities Act of 1933, as amended, for
the shares being offered by this prospectus. This prospectus does not
contain all of the information that is in the registration statement and
the attached exhibits. For further information about HBD and the
securities offered, see the registration statement and to the exhibits
filed. The statements contained in this prospectus about the contents of
any contract or other document identified as exhibits in this prospectus
are not necessarily complete, and in each instance, reference is made to a
copy of the contract or document filed as exhibit to the registration
statement, each statement being qualified in any and all respects by this
reference. The registration statement, including exhibits, may be
inspected without charge at the principal reference facilities maintained
by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's Regional Office, located at Seven World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or
any part may be obtained from the Commission upon payment of fees
prescribed by the Commission from the Public Reference Section of the
Commission at its principal office in Washington, D.C. The telephone
number for the Public Reference Section is 800-SEC-0330. The Commission
maintains a web site on the Internet that will contain all future reports,
proxy and information statements and other information that HBD is
required to file electronically with the Commission. The address of the
Commission's web site is http://www.sec.gov.
We will furnish our shareholders with annual reports containing audited
financial statements after the end of each fiscal year.
INDEX TO FINANCIAL STATEMENTS
PAGE
Table of Contents F-1
Independent Auditors' Report F-2
Balance Sheets F-3
Statements of Income and Partners' Capital F-4
Statements of Cash Flows F-5
Notes to Financial Statements F6-11
F-1
INDEPENDENT AUDITORS' REPORT
To the Partners
Transforming Cosmetics
We have audited the accompanying balance sheets of Transforming
Cosmetics (a Partnership), as of December 31, 1997 and 1998, and the
related statements of income and partners' capital, and cash flows for
the years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Transforming Cosmetics, as of December 31, 1998 and December 31, 1997,
and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
Naden/Lean, LLC
Baltimore, Maryland
February 5, 1999
F-2
TRANSFORMING COSMETICS
BALANCE SHEETS
AS OF
ASSETS
December 31, June 30,
1997 1998 1999
(unaudited)
CURRENT ASSETS
Cash $ 226,956 $ 634,108 $ 579,263
Accounts receivable:
Trade - net 312,300 123,467 34,090
Credit card processor 151,328 53,185 29,103
Employees and affiliates 26,861 87,974 55,689
Inventory 687,246 724,355 679,165
Prepaid expenses 136,937 70,387 61,639
Total Current Assets 1,541,628 1,693,476 1,438,949
PROPERTY, PLANT
& EQUIPMENT - AT COST NET 182,451 210,135 197,189
OTHER ASSETS
Marketing materials
& other - net 338,449 453,560 422,043
Direct response advertising 256,927 512,538 460,467
Deposits 17,161 13,661 21,668
Total Other Assets 612,537 979,759 904,178
TOTAL ASSETS $2,336,616 $2,883,370 $2,540,316
LIABILITIES AND PARTNERS' CAPITAL
December 31, June 30,
1997 1998 1999
(unaudited)
CURRENT LIABILITIES
Accounts payable
& accrued expenses $662,820 $562,505 $710,520
Notes payable 5,026 - 7,941
Advanced client media deposits - 541,983 123,033
Obligations under capital lease 8,084 9,842 -
Due to affiliates 80,000 - -
Reserve for sales refunds 228,424 70,293 20,000
Total Current Liabilities 984,354 1,184,623 861,494
NON-CURRENT LIABILITIES
Note payable 8,947 - -
Obligations under
capital lease 12,620 2,778 -
Total Non-Current
Liabilities 21,567 2,778 -
TOTAL LIABILITIES 1,005,921 1,187,401 861,494
PARTNERS' CAPITAL 1,330,695 1,695,969 1,678,822
TOTAL LIABILITIES
& PARTNERS' CAPITAL $2,336,616 $2,883,370 $2,540,316
See Independent Auditor's Report and Accompanying Notes.
F-3
TRANSFORMING COSMETICS
STATEMENTS OF INCOME AND PARTNERS' CAPITAL
FOR THE PERIODS INDICATED
Years ended Six Months
December 31, ended June 30,
1997 1998 1998 1999
(unaudited) (unaudited)
SALES - net of
sales refunds $7,687,626 $9,552,994 $5,380,649 $5,680,455
COST OF GOODS SOLD 5,631,565 7,429,250 4,362,401 4,930,658
GROSS PROFIT 2,056,061 2,123,744 1,018,248 749,797
OPERATING EXPENSES
Selling 1,004,219 949,657 508,157 309,898
General &
administrative 713,914 571,781 354,252 313,434
TOTAL OPERATING
EXPENSES 1,718,133 1,521,438 862,409 623,332
INCOME FROM OPERATIONS
BEFORE OTHER INCOME
& EXPENSES 337,928 602,306 155,839 126,464
OTHER INCOME AND EXPENSES
Interest income 4,496 698 698 4,912
Gain (Loss) on
disposal of fixed
asset (14,430) 5,805 5,805 -
Miscellaneous income 1,775 - - -
---------- ---------- ---------- --------
TOTAL OTHER INCOME
& EXPENSES (8,159) 6,503 6,503 4,912
NET INCOME 329,769 608,809 162,342 131,376
PARTNER'S CAPITAL
- BEGINNING OF YEAR 1,025,262 1,330,695 1,330,695 1,695,969
DISTRIBUTIONS (24,336) (243,535) (243,535) (148,523)
PARTNERS' CAPITAL
- END OF YEAR $1,330,695 $1,695,969 $1,249,502 $1,678,822
See Independent Auditor's Report and Accompanying Notes.
F-4
TRANSFORMING COSMETICS
CASH FLOW STATEMENTS
FOR THE PERIODS INDICATED
Years ended Six months
December 31, June 30,
1997 1998 1998 1999
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $329,769 $608,809 $162,342 $131,376
Adjustments to reconcile
net income to net cash
Provided by operating
activities:
Depreciation
& amortization 116,152 278,457 167,486 187,393
Provision for bad debts 37,038 33,175 16,588 10,829
(Gain)Loss on disposal
of fixed asset 14,430 (5,805) (5,805) -
(Increase) decrease
in operating assets:
Accounts receivable (343,594) 253,801 117,343 102,630
Inventory (143,564) (37,109) (174,243) 45,190
Prepaid expenses (3,342) 66,550 121,443 8,748
Deposits 2,839 3,500 10,806 (8,007)
Increase (decrease)
in operating liabilities:
Overdraft (85,724) - - -
Accounts payable
and accrued expenses 465,554 (100,315) 482,547 148,015
Advanced client
media deposits - 541,983 226,231 (418,950)
Due to affiliates - (80,000) (80,000) -
Reserve for sales
refunds - (158,131) (25,521) (50,293)
Other liabilities 121,734 - - -
---------- ------------ -------- ----------
NET CASH PROVIDED
BY OPERATING ACTIVITIES 511,292 1,404,915 1,019,216 156,931
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of property
and equipment (102,102) (90,624) (19,061) (20,201)
Proceeds from disposal
of fixed asset - 16,878 16,878 -
Investment in
marketing materials (267,918) (203,933) (140,528) (16,659)
Investment in direct
response advertising (256,927) (393,379) (393,425) (54,000)
Net cash advanced to
employees/affiliates 474,230 (61,113) 473 32,285
NET CASH USED IN
INVESTING ACTIVITIES (152,717) (732,171) (535,663) (58,574)
CASH FLOWS FROM
FINANCING ACTIVITIES
Distributions (24,336) (243,535) (243,535) (148,523)
Net cash paid
to affiliates (91,043) - - -
Principal payments
on notes payable (10,712) (13,973) (13,973) 7,941
Principal payments
on obligations
under capital leases (5,528) (8,084) (3,843) (12,620)
NET CASH USED IN
FINANCING ACTIVITIES (131,619) (265,592) (261,351) (153,202)
NET INCREASE IN CASH
& CASH EQUIVALENTS 226,956 407,152 222,202 (54,845)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR - 226,956 226,956 634,108
----------- ------------ ------------ -------
- ---
CASH AND CASH EQUIVALENTS,
END OF YEAR $226,956 $634,108 $449,158 $579,263
See Independent Auditor's Report and Accompanying Notes.
F-5
TRANSFORMING COSMETICS
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Transforming Cosmetics (the Company) was formed as a Maryland general
partnership in April 1994. The Company markets and distributes a line
of cosmetic products under the name "Linda Seidel's Natural Cover"
throughout the United States. These products are marketed primarily
through direct response advertising campaigns. In addition, the
Company purchases and sells media on behalf of third party clients for
use in their direct response advertising campaigns.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
investments purchased with a maturity of three months or less to be
cash equivalents.
Accounts Receivable
Accounts Receivable - Trade consists primarily of second and third
installments from customers who have elected to pay in three
installments. The Company uses the allowance method for recognition of
uncollectible accounts receivable. The allowance for uncollectible
accounts as of December 31, 1998 and 1997 was $41,090 and $63,635,
respectively.
Inventory
Inventory is stated at the lower of cost or market, using the first in,
first out (FIFO) method. The inventory consists primarily of various
cosmetic components included in kits, which are sold to customers.
Additionally, inventory includes packaging and printed marketing
materials.
Prepaid Expenses
Prepaid Expenses consist primarily of cash payments to media vendors
for direct response advertising, typically made 15-45 days in advance
to secure placement.
Property and Equipment
Property and equipment is recorded at cost. Depreciation expense is
recognized using accelerated methods over the estimated useful lives of
the specific assets, which range from 3 to 39 years. Repairs and
maintenance of property and equipment are charged to operations when
incurred. Betterments and renewals are capitalized and depreciated over
the estimated useful lives of the respective improvements.
Revenue Recognition
Revenues from the sale of cosmetic products are recognized when the
goods are shipped. Revenues from the sale of media are recognized when
the media is aired on television. Payments received in advance are
deferred until such time as the media is aired. As of December 31,
1997 and 1998, the Company's deferred revenues were $0 and $541,983,
respectively.
Marketing Materials
Marketing Materials are recorded at cost. Amortization expense is
recognized based on a cost-pool-by-cost-pool basis, over the period
during which the future benefits are expected to be received. The
amortization is computed using the ratio that current period gross
revenues for the production cost pool bear to the total of the current
and estimated future period gross revenues for the production cost
pool. The estimated gross revenues for each production cost pool range
from $1 million to $34 million. The estimated gross revenues for a
cost pool may increase or decrease over time as a result of more
accurate estimates based on current data. As a result, the ratio is
recalculated with adjustments accounted for in the current and
prospective periods.
F-6
TRANSFORMING COSMETICS
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Computer Software Costs
The Company has internally developed a computer database to process and
track customer orders and to initiate and facilitate collections.
These costs are to be amortized using the straight-line basis over five
(5) years. As of December 31, 1997 and 1998, the Company has
capitalized costs associated with the development of this system of
$46,000 and $106,500, respectively. The system was operational in
December 1998 and has started to be amortized.
Design, Packaging, Organizational and Other Costs
Design, packaging, organizational and other costs are amortized on the
straight-line basis over five (5) years.
Reserve For Sales Refunds
Under the Company's sales policy, customers may return goods ordered
for up to 60 days after a sale is made. Accordingly, the Company has
established a reserve for sales refunds as of December 31, 1997 and
1998 based on historical trends.
Income Taxes
Pro rata income from the partnership is combined with the income and
expenses of the partners from other sources and reported in the
partners' individual federal and state tax returns. The partnership is
not a tax-paying entity for purposes of federal and state income taxes,
and thus, no income taxes have been recorded in the accompanying
statements.
Concentration of Credit Risk
The Company occasionally maintains deposits in excess of federally
insured limits. Statement of Financial Accounting Standards No. 105
identifies these items as a concentration of credit risk requiring
disclosure, regardless of the degree of risk. The risk is managed by
maintaining all deposits in high quality financial institutions.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ
from those estimates.
Interim Financial Statements
The accompanying statements of operations and cash flows for the six
months ended June 30, 1998 and 1999 are unaudited. In the opinion of
management, the unaudited financial statements have been prepared on
the same basis as the audited financial statements and include all
adjustments, consisting of normal recurring adjustments, necessary for
fair presentation of the results of operations and cash flows for the
interim period. The results of operations for the six months ended
June 30, 1998 and 1999 are not necessarily indicative of the results to
be expected for the entire year.
F-7
TRANSFORMING COSMETICS
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
1997 1998
Furniture, fixtures, equipment,
and computer software $156,545 $241,923
Transportation equipment 53,180 29,448
Leasehold improvements 34,234 34,235
Equipment held under capital lease 26,232 26,232
-------- --------
270,191 331,838
Less: accumulated depreciation (87,740) (121,703)
Property and Equipment - Net $182, $210,135
Depreciation expense for the years ended December 31, 1997 and 1998 was
$43,905 and $51,867, respectively.
NOTE 3 - MARKETING MATERIALS AND OTHER
Marketing materials and other consist of the following at December 31.
Direct response marketing materials include the Company's television,
radio and printed marketing campaigns. Each of these campaigns
includes a toll-free 800 or 888 number that enables the Company to
specifically identify and track the customers who order its products.
1997 1998
Direct response marketing materials $733,007 $903,292
Design, packaging,
organizational and other 99,037 136,270
-------- ---------
832,044 1,039,562
Less: accumulated amortization (493,595) (586,002)
Marketing Materials and Other - Net $338,449 $453,560
Amortization expense for the years ended December 31, 1997 and 1998 was
$72,247 and $88,822, respectively.
NOTE 4 - DIRECT RESPONSE ADVERTISING
The company expenses the media costs of advertising the first time the
advertising takes place, except for direct response advertising, which
is capitalized and amortized over its expected period of future
benefits. Direct response advertising consist primarily of television
infomercials that include a specific toll-free number to order the
Company's products. The capitalized costs of the direct response
advertising are amortized based on the ratio of the cumulative
revenue generated to date versus the total cumulative revenue estimated
to be generated by the direct response advertising. The total
anticipated economic benefit from direct response advertising, as of
December 31, 1997 and 1998, is estimated to be $6,256,000 and
$11,759,500 respectively. Revenue generated as of December 31, 1997
and 1998 was approximately $5,643,000 and $10,482,000, respectively.
At December 31, 1997 and 1998, unamortized direct response advertising
cost of $256,927 and $512,538, respectively, was reported in the
accompanying balance sheet as other assets. For the years ending
December 31, 1997 and 1998, amortization expense applicable to direct
response advertising totaled $2,367,232 and $1,924,877, respectively.
F-8
TRANSFORMING COSMETICS
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE 5 - SALES
In addition to sales of cosmetic products, the company provided various
direct response media buying services to third party clients. During
1998, approximately $4,500,000 of media sales are included in the net
sales of $9,552,994 which were sold at approximately 5% gross profit.
During 1997, approximately $1,700,000 of media sales are included in
the net sales of $7,687,626 that were sold at approximately cost (see
Note 9).
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following:
1997 1998
Term note, payable in monthly
installments of $453,
including Interest at 15.75% per year
secured by an automobile. $ 12,652 $ -
Term note, payable in monthly
installments of $667,
including interest at 8.5% per
year secured
by an automobile. 1,321 -
-------- ------
Total 13,873 -
Less: current maturities 5,026 -
--------- ------
Notes payable - noncurrent $ 8,947 $ -
NOTE 7 - OBLIGATION UNDER CAPITAL LEASE
In 1997, the company entered into a lease agreement for a telephone
system expiring in the year 2000 that qualified as a capital lease.
The asset has been recorded at the present value of future minimum
lease payments, discounted using an interest rate of 19.8%. The
capitalized cost of $26,232 less accumulated depreciation of $13,640 is
included in property and equipment (Note 2- Property and Equipment).
Depreciation expense for the system for the years ended December
31, 1997 and 1998 was $5,246 and $8,394, respectively. Interest expense
for the years ended December 31, 1997 and 1998 was $3,084 and $3,398,
respectively.
Future minimum lease payments under the capital lease are as follows:
Year ending December 31, 1999 $11,482
2000 2,871
--------
Total future minimum lease payments 14,353
Less: Amount representing interest (1,733)
------
Present value of future minimum lease payments 12,620
Less: Current portion 9,842
--------
Long Term Portion $2,778
F-9
TRANSFORMING COSMETICS
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE 8 - COMMITMENTS
Operating Lease
On January 31, 1997, the company entered into a five year operating
lease for its office space, which expires January 31, 2002. The lease
provides for base annual rental of $80,000 for the first two years and
increases to $90,000 for the final three years. Additionally, the
lease provides that the company pays its proportionate share of any
increase in real estate taxes and insurance over the base year costs.
The lease contains a 5-year renewal option. The company also rents
various other space on a month to month basis. Rent expense for the
years ended December 31, 1997 and 1998 was $71,648 and $94,260,
respectively.
Line of Credit
In July 1998, the company's line of credit was renewed and increased to
$1,000,000. The Note provides for interest at the Libor Rate plus
3.75%, applied to balances borrowed against the line of credit. The
Note is secured by accounts receivable, inventory and prepaid media
purchases, and was guaranteed by the general partner. The Note has a
maturity date of May 2000 and has never been borrowed against as of
December 31, 1998.
NOTE 9 - RELATED PARTY TRANSACTIONS
The company transacts business with several of its general partners and
their affiliates as summarized below:
1997 1998
Nature of Transaction Nature of Relationship Amount Amount
Purchase of direct
response media Partners and Affiliates $1,704,215 $0
Purchase of media
business assets Partners and Affiliates $0 $200,000
Operating expenditures
including rent, office
cleaning, royalties, carpet
purchase, and
computer design. Partners and Affiliates $59,929 $88,744
The company's operating agreement provides for certain management
services to be provided by the general partner. No payments are due or
payable to the general partner for these services.
Balance due to/from related parties at December 31 are as follows:
1997 1998
Due from employees and affiliates $ 26,861 $ 87,974
Accrued royalties due general partner $ 80,000 $ 0
These transactions are payable on demand and without interest.
F-10
TRANSFORMING COSMETICS
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE 10 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest expense paid by the company for the years-ended December
31,1997 and 1998 was $5,808 and $4,473, respectively
Schedule of non-cash financing and investing activities for the year
ended December 31, 1997:
Purchase of property and equipment $ 128,334
Less: capital lease assumed 26,232
----------
Cash paid for purchase of property and equipment $ 102,102
F-11
INDEX TO FINANCIAL STATEMENTS FOR
HealthandBeautyDirect.com, Inc.
Page
Number
Independent Auditors' Report 1
Financial Statements
Balance Sheet 2
Notes to Financial Statements 3
INDEPENDENT AUDITORS' REPORT
To Board of Directors
HealthandBeautyDiret.com, Inc.
Baltimore, Maryland
We have audited the accompanying balance sheet of HealthandBeautyDirect.com,
Inc. as of July 14, 1999. This financial statement is the responsibility of
the Company's management. Our responsibility is to express an opinion on
this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall balance sheet presentation. We believe our audit of
the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of HealthandBeautyDirect.com, Inc.
as of July 14, 1999 in conformity with generally accepted accounting
principles.
Timonium, Maryland
August 27, 1999
- -1-
HealthandBeautyDirect.com, Inc.
BALANCE SHEET
JULY 14, 1999
ASSETS
CURRENT ASSETS:
Cash 500
TOTAL ASSETS 500
LIABILITIES AND STOCKHOLDER'S EQUITY
TOTAL LIABILITIES -
STOCKHOLDER'S EQUITY: 500
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY 500
See Independent Auditor's Report and Accompanying Notes
- -2-
HealthandBeautyDirect.com, Inc.
NOTES TO FINANCIAL STATEMENTS
JULY 14, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
HealthandBeautyDirect.com, Inc. (the Company) was formed as a Delaware
corporation in March 1999. It is anticipated that the assets, liabilities
and business of Transforming Cosmetics, a Maryland general partnership,
will be transferred to the Company. Transforming Cosmetics provides direct
response marketing services to various clients and distributes its own line
of cosmetics under the brand name Linda Seidel Natural Cover.
Cash and Cash Equivalents
For purposes of the balance sheet, the Company considers all investments
purchased with a maturity of three months or less to be cash equivalents.
Estimates
The preparation of a balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the balance sheet. Actual
results could differ from those estimates.
NOTE 2 - STOCKHOLDERS' EQUITY
The Company is authorized to issue 10,000,000 shares, par value $.01 of
stock. The number of shares of common stock authorized is 9,800,000. The
company is also authorized to issue 200,000 shares of preferred stock,
however, there is no preferred stock issued or outstanding as of July 14,
1999.
The Company issued one share of common stock for $500 on June 30, 1999.
- -3-
HEALTHANDBEAUTYDIRECT.COM, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF:
PART I -- INFORMATION REQUIRED IN PROSPECTUS
Form SB-2 Item Number and Caption Caption in Prospectus
1. Front of Registration Statement and
Outside Front Cover of Prospectus Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus Inside Front Cover Page of
Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds How We Intend to Use the Proceeds
of this Offering
5. Determination of Offering Price Plan of Distribution -
Determination of Offering Price
6. Dilution Dilution
7. Selling Security Holders Not applicable
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Business -- Legal Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons Management
11. Security Ownership of Certain
Beneficial Owners and Management Principal Shareholders
12. Description of Securities Description of Capital Stock
13. Interest of Named Experts and Counsel Not applicable
14. Disclosure of Commission Position on Management -- Limitation and
Indemnification for Securities Act Indemnification of Liability of
Officers and Directors
15. Organization Within Last Five Years Business - Organization of HBD
16. Description of Business Prospectus Summary; Risk Factors;
Business; Certain Transactions
17. Management's Discussion and Analysis
or Plan of Operation Management's Discussion and
Analysis of Financial Condition
and Results of Operations
18. Description of Property Business - Facilities
19. Certain Relationships and Related
Transactions Certain Transactions
20. Market for Common Equity and Related
Shareholder Matters Risk Factors; Shares Eligible
for Future Sale
21. Executive Compensation Management: Executive
Compensation
22. Financial Statements Index to Financial Statements
23. Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure Not applicable
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation, Article Ninth, provide that
a director of the Registrant shall not be liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a
director, to the fullest extent permitted by Delaware law. The Article
also provides that the Registrant may indemnify anyone who is or was an
officer, director or employee of the Registrant (or who is or was an
officer, director or employee of any other enterprise at the request of
the Registrant), to the full extent permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities
Act, indemnification may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing section. The
Registrant has been informed that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses of the Registrant in connection with the issuance and
distribution of the securities being registered are estimated as follows,
assuming the Maximum offering amount is sold:
Securities and Exchange Commission filing fee $ 1,668
Blue sky fees and expenses 12,000
Accountant's fees and expenses 25,000
Special Counsel's fees and expenses 50,000
General Counsel's fees and expenses 7,500
Printing 14,000
Postage 14,000
Marketing expenses 45,000
Chicago Stock Exchange listing fees 15,000
Miscellaneous 832
Total $ 185,000
(The Registrant will bear all expenses shown above.)
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant has not sold any securities within the past three years.
ITEM 27. EXHIBITS
The exhibits listed below are filed as part of this Registration Statement
pursuant to Item 601 of Regulation S-B.
Exhibit
Number Description
** 3.1 Amended and Restated Certificate of Incorporation
** 3.2 Corporate By-laws
** 4.1 Article II, pages 1-6, of the By-laws
(Reference is made to Exhibit 3.2)
** 4.2 Text and description of the form of certificate of
common stock certificate
* 5 Opinion and consent of counsel
** 10.1 Employment Contract with Linda Seidel
* 10.2 Management Services Agreement
*** 23.1 Consent of Naden/Lean, LLC.
** 23.2 Consent of counsel (reference is made to Exhibit 5)
* 24 Power of Attorney
* 27 Financial Data Schedule
** 99.1 Share Purchase Order Agreement
* 99.2 Impound Agreement
* 99.3 Lock-In Agreement
* Filed with Pre-Effective Amendment #1
** Filed previously with SB-2
*** Filed with this Pre-Effective Amendment #2
ITEM 28. UNDERTAKINGS.
(a) The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change
in
the information in the registration statement; and
(iii)Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
Pre-Effective Amendment Number 2 to the Registration Statement to be
signed on its behalf by the undersigned, in the County of Baltimore, State
of Maryland, on September 29, 1999.
HealthandBeautyDirect.com, Inc.
By S/Brian M. Fraidin,
Chief Executive Officer & Director
In accordance with the requirements of the Securities Act of 1933, this
Pre-Effective Amendment Number 2 to the Registration Statement was signed
by the following persons in the capacities and on the dates stated.
Signature Title Date
S/Brian M. Fraidin Chairman of the Board September 29, 1999
of Directors
S/Brian M. Fraidin Principal Executive Officer September 29, 1999
and Director
S/Brian M. Fraidin Principal Financial Officer September 29, 1999
S/Vipul Munjal Principal Accounting Officer September 29, 1999
S/Steven Zwagil Director September 29, 1999
S/Linda Seidel Director September 29, 1999
S/David Dougherty Director September 29, 1999
S/Todd Foreman Director September 29, 1999
S/Brian M. Fraidin September 29, 1999
Attorney in Fact
II-1
Consent of Naden/Lean, LLC
August 17, 1999
We consent to use of our report for Transforming Cosmetics dated
February 5, 1999 and for HealthandBeautyDirect.com, Inc. dated August
16, 1999 and to the reference to our firm under the Caption "Experts"
in the Registration Statement (Form SB-2) and related
Prospectus of HealthandBeautyDirect.com, Inc.
S/ Naden/Lean, LLC
Certified Public Accountants
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
company's financial statements for the period ended June 30 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 579,263
<SECURITIES> 0
<RECEIVABLES> 126,230
<ALLOWANCES> 7,348
<INVENTORY> 679,165
<CURRENT-ASSETS> 1,438,949
<PP&E> 197,189
<DEPRECIATION> 20,496
<TOTAL-ASSETS> 2,540,316
<CURRENT-LIABILITIES> 861,494
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,678,822
<TOTAL-LIABILITY-AND-EQUITY> 2,540,316
<SALES> 0
<TOTAL-REVENUES> 5,680,455
<CGS> 4,930,658
<TOTAL-COSTS> 623,332
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,912
<INCOME-PRETAX> 131,376
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131,376
<EPS-BASIC> 0
<EPS-DILUTED> 0
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