<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
Form 10 - QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission file number 1 - 9206
--------
ENTOURGE INTERNATIONAL, INC.
(name of Small Business Issuer in its charter)
Texas 76 - 0118305
- ----- ------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
32240 Paseo Adelanto, Ste. A
San Juan Capistrano, California 92675
- ------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (714) 488-2184
--------------
Securities registered pursuant to section 12(b) of act: None
Securities registered pursuant to section 12(g) of act: None
Common stock $.001 par value.
Check whether the issuer (1) filed all reports required to be filed by
section 13 of 15 (d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No ___
--
As of September 30, 1997, there were 22,893,074 shares outstanding of the
issuer's common stock, $.001 par value.
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Condensed Financial Statements
---------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed Balance Sheets
June 30, 1997 and September 30, 1996 3
Condensed Statements of Operation
For the Three Months Ended and the Nine
Months Ended June 30, 1997
and June 30, 1996 4 - 5
Condensed Statements of Cash Flows
For the Nine Months Ended June 30, 1997
and June 30, 1996 6
Notes to Condensed Financial Statements 7 - 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 11
</TABLE>
2
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30 Sept 30
1997 1996
---- ----
<S> <C> <C>
Cash $ 9,982 $ 0
Trade accounts receivable, net 129,195 11,080
Inventory 85,099 51,485
Other current assets 8,294 1,256
----------- -----------
Total current assets 232,570 63,821
Property and equipment, net 280,755 30,177
Other assets 38,645 11,724
----------- -----------
Total Assets 551,970 105,722
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable and accrued liabilities 142,628 325,460
Notes payable - current 59,096 278,145
----------- -----------
Total current liabilities 201,724 603,605
Notes payable - long term portion 126,146 0
----------- -----------
Total liabilities 327,870 603,605
=========== ===========
Stockholders' Equity
Common Stock, $.001 par value. Authorized 25,000,000
shares; issued and outstanding 20,468,074 shares at
June 1997 and 3,675,574 at September 1996 20,468 3,675
Additional paid-in capital 3,682,516 2,982,110
Accumulated deficit (3,478,884) (3,483,668)
----------- -----------
Total stockholders' equity 224,100 (497,883)
----------- -----------
Total Liabilities and Stockholders' Equity 551,970 105,722
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
June 30 June 30
1997 1996
---- ----
<S> <C> <C>
Net Sales $311,811 $322,969
Cost of Sales 53,445 65,548
-------- --------
Gross Margin 258,366 257,421
-------- --------
Expenses
Selling and G&A 246,329 208,972
Advertising (10,579) 55,426
Depreciation and amortization 8,663 7,096
-------- --------
Total expenses 244,413 271,494
Operating income (loss) 13,953 (14,073)
Interest expense 2,434 1,021
Other income (expense) 1,463 2,248
-------- --------
Net income (loss) 12,982 (12,846)
======== ========
Net income (loss) per common share $.002 $(.003)
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Nine
Months Months
Ended Ended
June 30 June 30
1997 1996
---- ----
<S> <C> <C>
Net Sales $855,179 $ 911,423
Cost of Sales 158,805 139,614
-------- ---------
Gross margin 696,374 771,809
-------- ---------
Expenses
Selling and G&A 667,139 691,701
Advertising 20,619 122,313
Depreciation and amortization 17,168 48,644
-------- ---------
Total expenses 704,926 862,658
-------- ---------
Operating income (loss) (8,552) (90,849)
Interest expense (6,376) (2,354)
Other income 6,957 26,871
-------- ---------
Gain (loss) from continuing operations before
taxes and extraordinary gain 4,781 (61,624)
Income tax expense 0 0
Gain (loss) from continuing operations before
extraordinary gain 4,781 (61,624)
Loss from discontinued operations, net of taxes 0 (64,464)
-------- ---------
Loss before extraordinary gain 4,781 (126,088)
Extraordinary gain on debt extinguishment, net
of taxes _______ 543,000
---------
Net income (loss) $ 4,781 $ 416,912
======== =========
Net income (loss) per common share $.001 $.11
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Nine
Months Months
Ended Ended
June 30 June 30
1997 1996
---- ----
<S> <C> <C>
Net cash provided by (used in) operating
activities $(205,010) $(201,814)
Net cash provided by (used in) investing
activities (262,992) (2,233)
Net cash provided by (used in) financing
activities 486,115 211,904
--------- ---------
Net increase (decrease) in cash 18,113 7,859
Cash at beginning of period 0 33,405
--------- ---------
Cash at end of period 18,113 41,262
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
INTERIM FINANCIAL STATEMENTS. The accompanying condensed financial statements
- -----------------------------
have been prepared in accordance with instructions to quarterly reports on form
10-QSB. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and changes in cash flows at June 30, 1997 and
for all periods presented have been made. Certain information and foot note
data necessary for fair presentation of financial position and results of
operations in conformity with generally accepted accounting principles have been
condensed or omitted. It is therefore suggested that these statements be read
in conjunction with the summary of significant accounting policies and notes to
financial statements included in the Company's annual Form 10-KSB. The results
of operations for periods ended June 30, 1997 are not necessarily indicative of
operating results for the full year.
ACQUISITION OF BIOGIME FRANCHISE SERVICES (USA), Inc. The Company entered into
- -----------------------------------------------------
an Agreement and Plan of Merger ( the "Merger Agreement") dated January 31,
1997, among Entourage International, Inc., a Texas corporation ( "Registrant" ),
BFS Acquisition Corp., a Texas corporation and wholly-owned subsidiary of
Registrant ("BAC"), Biogime Franchise Services (USA), Inc., a California
corporation ("BFS"), and the shareholders of BFS, BFS was merged into BAC and
became a wholly-owned subsidiary of the Registrant.
On the closing date, BAC acquired all of the assets of BFS in the amount of
$362,452 and assumed all of the liabilities of BFS in the amount of $184,701.
The assets included a $175,000 promissory note executed by the Registrant
payable to BFS which was due on demand. Following the acquisition, this
indebtedness was canceled. As consideration for the acquisition, the Registrant
issued 7,500,000 shares of its common stock to the shareholders of BFS.
The amount of the consideration for the acquisition was determined by recent
trading prices and quotations for the Registrant's common stock at the time of
the acquisition. An estimated value of $.04 per share was derived, resulting in
a total consideration of $300,000 , which represented the business judgment of
the Registrant's Board of Directors as to the fair value of BFS. Factors
considered by the Board of Directors were the revenue, earnings and cash flow
from the activities engaged in by BFS utilizing the assets acquired by the
Registrant in this transaction and the relative financial condition, liquidity
and operating results of the Registrant.
Certain of the BFS shareholders are affiliated with the Registrant. The
President /CEO and a director of the Registrant received 1,637,534 shares of the
Registrant's common stock for his stock in BFS in the transaction. Two adult
children of the President/CEO received a total aggregate of 2,587,399 shares of
the Registrant's common stock for their stock in BFS. A director of the
Registrant received 1,250,026 shares for his stock in BFS and his adult son
received 1,400,029 shares of the Registrant's common stock for his stock in BFS
in the transaction. The President/CEO and the director abstained in the vote by
the Registrant's Board of Directors to approve the transaction.
Prior to the acquisition, BFS was engaged in the distribution of Biozhem Skin
Care Products through six franchised Biozhem Skin Care Centers and two BFS-
owned Biozhem Skin Care Centers. The BFS-owned Biozhem Skin Care Centers are
located in Santa Ana and San Diego, California. The franchised stores are
located it Tulsa, OK., Oklahoma City, OK., Honolulu, HI., Louisville, KY.,
Atlanta, GA., and Las Vegas, NV. Following the acquisition, the Registrant
controls all retail store distribution through Biozhem Skin Care Centers in the
United States.
7
<PAGE>
ENTOURAGE INTERNATIONAL INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
WORKING CAPITAL LOAN (Biogime Franchise Services). Effective with the December
- -------------------------------------------------
21, 1995 closing, before the Spin Off, the Company arranged a working capital
loan from Biogime Franchise Services (USA), Inc. ("BFS"). BFS agreed to loan
the Company up to $175,000 on a demand note secured by the Company's assets at
an interest rate of eight per cent annually. The note was later canceled as
part of the acquisition of Biogime Franchise Services (USA), Inc. ( see
description above)
SUPPLIER FINANCING - INVENTORY NOTE AGREEMENT. The Company negotiated an
- -----------------------------------------------
inventory note agreement with Arizona Natural Resources (ANR), its primary
supplier, to provide the Company inventory note financing during the post spin
off restructuring period. The inventory note was in the amount of $55,000 and
carried an interest rate of 10% per year. No payments were required for a six
month period until October 1966, after which, the balance of $55,000 was paid
over a six month period ending March 1997.
RECLASSIFICATION. Certain amounts in the 1996 condensed financial statements
- -----------------
have been reclassified to conform with the 1997 presentation.
8
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESTRUCTURING, LIQUIDITY, CAPITAL RESOURCES
- --------------------------------------------
The restructuring begun by the Company in December 1995 has had a positive
effect, but the Company continues to suffer from liquidity shortages and less
than acceptable sales levels. The restructuring program includes reducing G&A
expense levels, refocusing and redirecting management resources toward corporate
retail and franchise Biozhem Skin Care center profitability improvement, and
development of an expanded line of skin care products under the brand name
Biozhem. In addition , a new women's color product line was introduced in April
1997 under the name of Colour Concepts which has opened a new area of potential
sales.
However in spite of the restructuring, the Company continues to experience
liquidity shortages as a result of less than acceptable sales levels. The
Company had current assets in excess of current liabilities of $30,846 as of
June 30, 1997 compared with current liabilities in excess of current assets of
$539,784 as of September 30, 1996 and $301,880 as of March 31, 1997. The net
profit of $4,908 for the nine months ended June 30, 1997 increased the working
capital position as of June 30, 1997.
Cash decreased from $18,113 as of March 31, 1997 to $9,982 as of June 30,
1997
Accounts payable and accrued liabilities decreased from $325,460 as of
September 30, 1996 to $142,628 as of June 30, 1997 primarily as a result of
satisfying accrued liabilities in the amount of $124,500 with the issuance of
the Company's common stock. In addition, final reconciliation of 1995 accounts
payable resulted in adjustments of $34,096 in reduced expenses. Accrued interest
for the BFS note in the amount of $12,000 was also forgiven and canceled.
The Company, as of September 1, 1997, acquired a $50,000 operating line of
credit. However, the Company must rely on cash management and profitability
during fiscal year 1997 in order to continue. Although management believes the
Company will improve its profitability, if management can not achieve its 1997
operating plan because of sales shortfalls or other unfavorable events and if
liquidity shortages continue, the Company may find it necessary to further
reduce expenses, seek additional funds from outside the Company, or undertake
other actions as may be appropriate.
9
<PAGE>
RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 1997
---------------------------------------------------
COMPARED WITH QUARTER ENDED JUNE 30, 1996
-----------------------------------------
The net profit for the continuing operations for the quarter ended June 30,
1997 was $12,982 ($.002 per share), compared with a net loss of $12,846 ($.003
per share) for the quarter ended June 30, 1996. The net profit resulted from
expense adjustments after final reconciliation of the 1995 accounts payable in
the amount of $34,096. In addition, accrued interest for on the BFS note was
forgiven and canceled in the amount of $12,000.
Net sales for the continuing operations for the quarter ended June 30, 1997
were $311,811 compared with net sales of $322,969 for the quarter ended June 30,
1996. The decrease in net sales was primarily because of reduced volumes as a
result of reduced advertising expenditures, the need for a new "infomercial" and
reduced sales at the franchise division. One franchise location closed in May
1997 and two more were acquired by the Company in the BFS acquisition
transaction and are now part of the Company's retail division. During the
quarters ended June 30, 1997 and 1996 respectively, net sales increased in the
retail division by about $10,000 (4%). The sales increase was due to the
addition of the San Diego and Laguna Hills retail locations acquired in the BFS
acquisition transaction January 31, 1997 and reflects the closure of the
Chicago Oakbrook retail location, which closed as of August 30, 1996. Sales
volume in the franchise division declined by about $21,000 or 32% during the
quarter ended June 30, 1997 compared with the quarter ended June 30, 1996 due to
the closure of one franchise location and the acquisition of the two franchise
locations by the Company's retail division.
Gross margin was 83% for the quarter ended June 30, 1997 and 80% for the
quarter ended June 30, 1996. The increased gross margin percentage resulted
primarily from the increase mix of retail sales versus franchise sales.
Operating expenses for the quarter ended June 30, 1997 were about $244,500
compared with about $271,500 for the quarter ended June 30, 1996 primarily as a
result of the final reconciliation of 1995 accounts payable and resulting
expense adjustments in the amount of $34,096. Overall, the Company believes that
current operating expenses are at a minimum level to allow the Company to
improve its sales volume during fiscal year 1997.
The Company decreased its advertising expenditures during the quarter ended
June 30, 1997 to about $7,000 from about $55,500 in the quarter ending June 30,
1996, and about $12,700 in the quarter ended March 31, 1997. The advertising
expense in the financial section (see page 4) shows a credit for the quarter
ended June 30, 1997 in the amount of $10,579. Final reconciliation of the 1995
accounts payable resulted in a credit adjustment to advertising expense in the
amount of $17,620. The Company has focused its advertising on special mailings
to the Company's existing customer base on a monthly basis. A new "infomercial"
is under production and should be ready for the new Fall promotions.
Selling, general and administrative expenses showed a net increase of about
$37,000 for the quarter ended June 30, 1997 compared with the quarter ended June
30, 1996 primarily as a result of reduced expenses in existing operations of
about $33,500 and the addition of two retail locations which had approximately
$70,500 in new expenses.
10
<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED JUNE 30, 1997
-------------------------------------------------------
COMPARED WITH NINE MONTHS ENDED JUNE 30, 1996
---------------------------------------------
The net profit for the continuing operations for the nine month period
ended June 30, 1997 was $4,781 ($.001 per share) compared with a net profit of
$416,912 ($.11 per share) for the nine month period ended June 30, 1996. The
net profit resulted from a final reconciliation of 1995 accounts payable and a
resulting expense adjustment of $34,096 and the cancellation of the accrued
interest on the BFS note payable in the amount of $12,000. The net loss for the
continuing operations prior to these adjustments for the nine months ended June
30,1997 was $41,315. The Tampa retail location represented about $13,500 of this
loss and was subsequently closed in August 1997. The net profit of $416,912 from
the nine months ended June 30, 1996 was made up of a loss of $61,624 on
continuing operations, a loss of $64,464 from discontinued operations and an
extraordinary gain on debt extinguishment of debt of $543,000.
Net sales for the nine month period ended June 30, 1997 were $855,179
compared with net sales of $911,423 for the period ended June 30, 1996. The
decrease in net sales was generally because of reduced volumes and as a result
of reduced advertising expenditures, the need for a new "infomercial", the
closure of the Chicago Oakbrook retail location in August 1996 and reduced sales
at the franchise division level. Net sales in the franchise division declined by
about $8,000 and net sales in the retail division declined by about $48,000 with
Chicago representing approximately $38,500 of the decline.
Gross margin was 81% for the nine month period ended June 30, 1997 and 85%
for the nine month period ended June 30, 1996. The decreased gross margin
percentage resulted primarily from offering addition discounts at the retail
level in order to increase sales earlier in the year. The gross margin in the
quarter ended June 30, 1997 was 83%.
Operating expenses for the nine months ended June 30, 1997 were about
$704,800 compared with about $862,700 for the nine months ended June 30, 1996
generally due to reduced advertising expenditures.
The Company reduced its advertising expenditures during the nine months
ended June 30, 1997 compared with the nine months ended June 30, 1996 from about
$122,500 to about $21,000, primarily as a result of refocusing its advertising
costs from the "infomercial" format to direct mailings. Advertising as a
percentage of net sales was 3% for the nine months ended June 30, 1997 compared
to 13% for the six months ended June 30, 1996.
Selling, general and administrative expenses showed a net decrease of about
$25,000 for the nine month period ended June 30, 1997 compared to the nine
months ended June 30, 1996. $75,000 was paid and expensed during the six months
ended March 31, 1996 as a result of the obligations to BII due to the Spin Off
transaction and the Chicago Oakbrook retail store, which was closed in August of
1996, had approximately $85,000 in expenses for the nine months ended June 30,
1996. Existing operations showed a decrease in expenses of approximately
$45,000. Approximately $115,000 in new expenses were added during the five
months ended June 30, 1997 as a result of the acquisition of two new Company
owned retail stores as part of the BFS acquisition transaction January 31. 1997.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There are no significant changes to the information reported in
the Form 10-KSB for the year ended September 30, 1996
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
None
b) Reports on Form 8-K
Announcement of acquisition of Biogime Franchise Services
(USA), Inc. as of January 31, 1997
c) Reports on Form 8-K/A
Item 7. Financial Statements, Pro Forma Financial
Information for the acquisition of Biogime Franchise
Services (USA), Inc. filed April 16, 1997
12
<PAGE>
SIGANTURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENTOURAGE INTERNATIONAL, INC.
-----------------------------
(registrant)
Date: October 10, 1997 By: /s/ John C. Riemann
-------------------
John C. Riemann
Chief Executive Officer
(Responsible Financial Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 9,982
<SECURITIES> 0
<RECEIVABLES> 129,195
<ALLOWANCES> 0
<INVENTORY> 85,099
<CURRENT-ASSETS> 8,294
<PP&E> 549,746
<DEPRECIATION> 268,991
<TOTAL-ASSETS> 551,970
<CURRENT-LIABILITIES> 201,724
<BONDS> 0
0
0
<COMMON> 20,468
<OTHER-SE> 329,778
<TOTAL-LIABILITY-AND-EQUITY> 551,970
<SALES> 855,179
<TOTAL-REVENUES> 862,136
<CGS> 158,805
<TOTAL-COSTS> 825,944
<OTHER-EXPENSES> 37,787
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6376
<INCOME-PRETAX> 4781
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4781
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
