<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number 1-9206
------
ENTOURAGE INTERNATIONAL, INC.
(Name of Small Business Issuer in its charter)
Texas 76-0118305
- ----- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
32240 Paseo Adelanto, Ste. A
San Juan Capistrano, CA 92675
- ----------------------- -----
(Address of Principal executive offices) (Zip Code)
Issuer's telephone number, including area code (714) 448-2184
--------------
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 May 31, 1997, there were 20,168,074 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
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<TABLE>
<CAPTION>
Page
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<S> <C>
Condensed Balance Sheets
March 31, 1997 and September 30, 1996 3
Condensed Statements of Operations
For the Three Months Ended March 31, 1997
and March 31, 1996 4
Condensed Statements of Operations
For the Six Months Ended March 31, 1997
and March 31, 1996 5
Condensed Statements of Cash Flows
For the Six Months Ended March 31, 1997
and March 31, 1996 6
Notes to Condensed Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II - OTHER INFORMATION 12
</TABLE>
2
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ENTOURAGE INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31 September 30
1997 1996
---- ----
<S> <C> <C>
Current Assets
Cash $ 18,113 $ 0
Trade accounts receivable, net 73,638 11,080
Inventory 61,740 51,485
Other current assets 3,523 1,256
----------- -----------
Total current assets 157,014 63,821
Property and equipment, net 284,791 30,177
Other assets 35,822 11,724
----------- -----------
Total Assets $ 477,627 $ 105,722
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 219,334 $ 325,460
Notes payable current 109,253 278,145
----------- -----------
Total current liabilities 328,587 603,605
Notes payable long-term portion 130,307
----------- -----------
Total Liabilities 458,894 603,605
=========== ===========
Stockholder's Equity
Common stock, $.001 par value. Authorized 25,000,000
shares; issued and outstanding 16,468,074 shares at
March 1997 and 3,675,574 at September 1996. 16,468 3,675
Additional paid-in capital 3,494,016 2,982,110
Accumulated deficit (3,491,751) (3,483,668)
----------- -----------
Total stockholders' equity 18,733 (497,883)
----------- -----------
Total Liabilities and Stockholders' Equity $ 477,627 $ 105,722
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
March 31 March 31
1997 1996
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<S> <C> <C>
Net Sales $274,668 $ 334,453
Cost of Sales 46,238 53,522
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Gross Margin 228,430 280,931
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Expenses
Selling and G&A 228,129 299,113
Advertising 12,667 66,263
Depreciation and amortization 4,213 16,528
-------- ---------
Total expenses 245,009 381,904
-------- ---------
Operating income (loss) (16,579) (100,973)
Interest expense (9,727) 8
Other income (expense) 3,659 500
-------- ---------
Net income (loss) (3,193) (100,481)
======== =========
Net income (loss) per common share $ (.0001) $ (.03)
======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Six
Months Months
Ended Ended
March March
1997 1996
---- ----
<S> <C> <C>
Net Sales $543,368 $ 588,454
Cost of Sales 105,360 74,066
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Gross margin 438,008 514,388
-------- ---------
Expenses
Selling and G&A 420,810 482,729
Advertising 31,198 66,887
Depreciation and amortization 8,378 41,548
-------- ---------
Total expenses 460,386 591,164
-------- ---------
Operating income (loss) (22,378) (76,776)
Interest expense (8,810) (3,375)
Other income 5,494 24,623
-------- ---------
Gain (loss) from continuing operations before
taxes and extraordinary gain (8,074) (48,778)
Income tax expense 0 0
Gain (loss) from continuing operations before
extraordinary gain (8,074) (48,778)
Loss from discontinued operations, net of taxes 0 (64,464)
-------- ---------
Loss before extraordinary gain (8,074) (113,242)
Extraordinary gain on debt extinguishment, net
of taxes 543,000
-------- ---------
Net income (loss) (8,074) 429,758
======== =========
Net income (loss) per common share $ (.0001) $ .12
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
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ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Six
Months Months
Ended Ended
March 31 March 31
1997 1996
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<S> <C> <C>
Net cash provided by (used in) operating activities $(205,010) $(22,727)
Net cash provided by (used in) investing activities (262,992) (9,628)
Net cash provided by (used in) financing activities 486,115 0
--------- --------
Net increase (decrease) in cash 18,113 (32,355)
Cash at beginning of period 0 33,405
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Cash at end of period $ 18,113 $ 1,050
========= ========
</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 the 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 March 31, 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 the periods ended March 31, 1997 are not necessarily
indicative of operating results for the full year.
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 below)
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.
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.
7
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ENTOURAGE INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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.
8
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company continues to suffer from liquidity shortages and less than
acceptable sales levels. The Company's restructuring program includes reducing
G&A expense levels, refocusing and redirecting management resources towards
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, during the quarter ended December 31, 1996, the Company
executed a temporary note payable to a shareholder in the amount of $11,500 and
obtained $25,000 through the sale of the Company's common stock.
During the second quarter ended March 31, 1997, the Company obtained $56,500
in funds in the form of notes to shareholders, $51,767 in financing as a result
of the acquisition of BFS and $85,000 through the sale of the Company's common
stock.
Though the liquidity position is improving, the Company continues to
experience severe liquidity shortages as a result of less than acceptable sales
levels. The Company had current liabilities in excess of current assets of
$301,880 as of March 31, 1997 compared with current liabilities in excess of
current assets of $539,784 as of September 30, 1996, and $515,500 as of December
31, 1996.
Cash decreased from $19,580 as of December 31, 1996 to $18,113 as of March
31, 1997.
Accounts payable and accrued liabilities decreased from $325,460 as of
September 30, 1996 to $219,334 as of March 31, 1997 primarily as a result of
satisfying accrued liabilities in the amount of $114,700 with the issuance of
the Company's common stock.
The Company currently has no other credit facilities, and 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 cannot 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 MARCH 31, 1997
----------------------------------------------------
COMPARED WITH QUARTER ENDED MARCH 31, 1996
------------------------------------------
The net loss for the continuing operations for the quarter ended March 31,
1997 was $3,193 ($.0001 per share), compared with a net loss of $100,481 (.03
per share) for the quarter ended March 31, 1996.
Net sales for the quarter ended March 31, 1997 were $274,668 compared with
net sales of $334,453 for the quarter ended March 31, 1996. The decrease in net
sales was primarily due to reduced volumes as a result of decreased advertising
expense. Advertising expense in the quarter ended March 31, 1997 were $12,667
compared to $66,263 for the quarter ended March 31, 1996. During the quarters
ended March 31, 1997 and 1996 respectively, net sales declined in the retail
division by about $64,592 (22%). Sales volume in the franchise division
increased about 6% during the quarter ended March 31, 1997 compared with the
quarter ended March 31, 1996.
Gross margin was 83% for the quarter ended March 31, 1997 and 84% for the
quarter ended March 31, 1996.
Operating expenses for the quarter ended March 31, 1997 were about $245,000
compared with about $382,000 for the quarter ended March 31, 1996 primarily as a
result of expense reductions made by the Company as part of its ongoing expense
reduction program. 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 quarters
ended March 31, 1997 to about $13,000 from about $66,000 in the quarter ending
March 31, 1996. The reduced advertising expenditures are primarily due to the
need for a new fresh "infomercial" which incorporates new product lines and the
new "biozhem" name.
Selling, general and administrative expenses decreased by about $71,000 for
the quarter ended March 31, 1997 compared with the quarter ended March 31, 1996
even though approximately $44,400 in additional expenses were incurred as a
result of the acquisition of two Company owned retail stores during this period.
$25,000 was paid and expensed during the quarter ending March 31, 1996 as a
result of the obligations to BII due to the Spin Off transaction.
10
<PAGE>
RESULTS OF OPERATIONS - SIX MONTHS ENDED MARCH 31, 1997
-------------------------------------------------------
COMPARED WITH SIX MONTHS ENDED MARCH 31, 1996
---------------------------------------------
The net loss for the six month period ended March 31, 1997 was $8,074
($.0001 per share) compared with a net profit of $429,758 ($.12 per share) for
the six month period ended March 31, 1996. The profit of $429,758 for the six
months ending March 31, 1996 included losses from continuing operations of
$48,778, losses from non continuing operations of $64,464 and an extraordinary
gain of $543,000 for debt extinguishment resulting from the Spin Off transaction
December 21, 1995. During this comparative period, the Company reduced its
selling, general and administrative expenses by $130,778.
Net sales for continuing operations for the six month period ended March
31, 1997 were $543,368 compared with net sales of $588,454 for the period ended
March 31, 1996. The decrease in net sales was primarily due to reduced volumes
and as a result of reduced advertising expenditures. The Company had advertising
expense of the six months ended March 31, 1997 of about $31,000 and $67,000 for
the six months ended March 31, 1996. Net sales in the franchise division
increased by $13,157 and in the retail division, the net sales decrease was
$45,086 for the six months ended March 31, 1997 respectively. $38,356 of the
decrease was due to the Chicago Oakbrook retail location which was closed in
August of 1996.
Gross margin was 81% for the six month period ended March 31, 1997 and 86%
for the six month period ended March 31, 1996. The decreased gross margin
percentage was due primarily from retail discounts at the point of sale in an
effort to increase overall sales volumes.
Operating expenses for the six months ended March 31, 1997 were about
$460,400 compared with about $591,000 for the six months ended March 31, 1996.
Operating expenses in the retail division decreased about $37,500 in the six
month period ended March 31, 1997 compared with the same six month period ended
March 31, 1996 due to decreased advertising and overhead.
The Company reduced its advertising expenditures during the six months
ended March 31, 1997 compared with the six months ended March 31, 1996 from
about $66,000 to about $31,000 primarily as a result of refocusing its
advertising costs and the need for a new "infomercial". Advertising as a
percentage of net sales is 6% for the six months ended March 31, 1997 compared
to 11% for the six months ended March 31, 1996.
Selling, general and administrative expenses decreased by about $62,000 for
the six month period ended March 31, 1997 compared with the six months ended
March 31, 1996 even though approximately $44,400 in additional expenses were
incurred as a result of the acquisition of two Company owned retail stores.
$75,000 was paid and expensed during the six months ended March 31, 1996 as a
result of obligations to BII due to the Spin Off Transaction.
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>
SIGNATURES
- ----------
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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 18,113
<SECURITIES> 0
<RECEIVABLES> 73,638
<ALLOWANCES> 0
<INVENTORY> 61,740
<CURRENT-ASSETS> 3,523
<PP&E> 588,733
<DEPRECIATION> 303,942
<TOTAL-ASSETS> 477,627
<CURRENT-LIABILITIES> 328,587
<BONDS> 0
0
0
<COMMON> 16,468
<OTHER-SE> 132,572
<TOTAL-LIABILITY-AND-EQUITY> 477,627
<SALES> 543,368
<TOTAL-REVENUES> 548,862
<CGS> 105,360
<TOTAL-COSTS> 526,170
<OTHER-EXPENSES> 39,576
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (8810)
<INCOME-PRETAX> (8074)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8074)
<EPS-PRIMARY> (.001)
<EPS-DILUTED> 0
</TABLE>
