BIOZHEM COSMECEUTICALS INC, 10KSB40, 1998-12-30

BIOZHEM COSMECEUTICALS INC
10KSB40, 1998-12-30
RETAIL STORES, NEC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 1998

Commission file number 1-14725
-------

BIOZHEM COSMECEUTICALS, INC.
(Name of Small Business Issuer in its Charter)
formerly ENTOURAGE INTERNATIONAL, INC.
Texas 76-0118305
- ----- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

32240 Paseo Adelanto Ste A
- --------------------------
San Juan Capistrano CA 92675
- ----------------------- -----
(Address of principal executive offices) (Zip code)

Issuer's telephone number, including area code (949) 488-2184
--------------
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock. $.001 par value
- -----------------------------

(Title of Class)
- ----------------

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 [_]

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

Issuer's revenues for its most recent fiscal year were $1,160,757.

As of September 30, 1998, the aggregate market value of the issuer's common
stock, $.001 par value, held by nonaffiliates of the issuer, is $2,370,279
computed based upon bid and ask quotes averaging $.40 per share. An active
trading market exists.

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TABLE OF CONTENTS
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PART I
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Item 1 Description of Business.......................................3-6

Item 2 Description of Property.........................................6

Item 3 Legal Proceedings...............................................6

Item 4 Submission of Matters to a Vote of Security Holders...........7-8

PART II

Item 5 Market for Common Equity and Related Stockholder Matters........9

Item 6 Management's Discussion and Analysis of Plan of Operations..9-13

Item 7 Financial Statements........................................14-32

Item 8 Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure........................33

PART III

Item 9 Directors, Executive Officers, Promoters and Control
Persons;Compliance with Section 16 (a) of the Exchange Act..34-35

Item 10 Executive Compensation.........................................35

Item 11 Security Ownership of Certain Beneficial Owners
and Management..............................................36-37

Item 12 Certain Relationships and Related Transactions.................38

Item 13 Exhibits, Lists and Reports on Form 8-K.....................39-40

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PART I.

ITEM 1. DESCRIPTION OF BUSINESS

Business Development
--------------------

Biozhem Cosmeceuticals, Inc. ("Biozhem" or "the Company"), formerly known
as Entourage International, Inc., is a Texas corporation which commenced
operations in 1984.

The Company's most significant operations involve the sale of Biozhem Skin
Care Products, formerly Biogime Skin Care, which it distributes through a
network of Company owned retail stores and one licensed retail store. The
Company enters into marketing and distribution agreements with
manufacturers of specific products or product lines and resells those
products through company-owned retail stores and one licensed retail store.

On January 31, 1997, the Company, through a wholly owned subsidiary, BFS
Acquisition Corp. "BAC", entered into an agreement and plan of merger with
the shareholders of Biogime Franchise Services USA, Inc. (BFS), a company
owned by an Officer/Director of the Company, whereby BFS was merged into
BAC. As a result of the merger, BAC acquired all of the assets of BFS
amounting to $273,895 and assumed all of the liabilities of BFS amounting
to $184,700. The assets included a $175,000 promissory note payable by the
Company to BFS which was due on demand. Following the merger, this
indebtedness was canceled. The merger consideration consisted of 1,500,000
shares of common stock issued to the shareholders of BFS valued at
$300,000. In connection with the acquisition, the Company recorded $210,805
in goodwill.

On July 1, 1997, the Company acquired the assets of two retail stores from
a franchisee for consideration of $107,155, consisting of a promissory note
in the amount of $49,095, forgiveness of liabilities due to the Company of
$55,060 and assumption of liabilities in the amount of $3,000. The note
bears interest at of 8% per annum with principal and interest payments due
monthly from July 15, 1997 through July 15, 2000.

On December 5, 1997, the Company entered into a Settlement Agreement and
Mutual Release of All Claims with the franchisee of the Atlanta, Georgia
store, closed in April 1997. In consideration, the Company issued the
franchisee a $59,855 non-interest bearing note and warrant to purchase
17,000 shares of the Company's common stock for $.40 per share.

Business of Issuer
------------------

A. Products

The company markets Biozhem skin care products.

Biozhem Skin Care Products: The Company's primary products are a series of
--------------------------
skin care formulations marketed and sold using the name Biozhem. Sales in
the Biozhem product line consist primarily of the five-step "Woman's Skin
Care System". This five-step process is specially formulated to clean and
condition the skin. The formulation consists of natural ingredients and
the Company has eliminated certain ingredients which are known to be
damaging to the skin. The Biogime name was used for the fifteen months
following the December 21, 1995 transfer of the direct sales division,
after which the name "biozhem" was used by Entourage, now known as Biozhem
Cosmeceuticals, Inc.. (See notes to financial statements)

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B. Distribution

At September 30, 1998, Biozhem skin care products are marketed through
seven Company-owned retail stores and one franchised store and one licensed
retail store.

(1) Company-owned Retail Stores
---------------------------

During fiscal 1998, the Company operated seven Company-owned retail stores
under the name Biozhem Skin Care Center. Sales through Company-owned retail
stores were 96% and 86% of total sales in the fiscal years ended September
30, 1998 and 1997 respectively. The locations with opening and closing
dates (during the current and previous fiscal years) of the Company-owned
and operated retail stores as of September 30, 1998 were:

Dallas, Texas (March 1991)
Phoenix, Arizona (March 1992)
Denver, Colorado (March 1993)
Santa Ana, California (February 1997)
San Diego, California (February 1997)
Tulsa, Oklahoma (July 1997)
Oklahoma City, Oklahoma (July 1997)
San Jose, California ( March 1993) (Closed September 1997)
Tampa, Florida (April 1993) (Closed September 1997)
Chicago (Oakbrook), Illinois (September 1993) (Closed
September 1996)

The San Jose, Santa Ana, San Diego, Tulsa and Oklahoma City stores were
acquired from franchisees; the other stores were opened by the Company.

Management evaluated the profitability of all its retail stores and closed
the unprofitable stores in Chicago in September of 1996 and Tampa in
September of 1997. These stores had shown losses since their opening. The
Company will continue to evaluate the profitability and continued
operations of the other retail stores. The San Jose store was closed at the
end of its lease with the intention of relocating to a large regional mall.

(2) Franchised and Licensed Retail Stores
-------------------------------------

Biozhem products have been distributed through two and four franchised and
licensed retail stores under the Biozhem Skin Care Center name through
September 30, 1998 and 1997, respectively. Their operations were the
responsibility of BFS until January 31, 1997, when BFS was acquired by the
Company. These retail stores are located in Kentucky, Oklahoma, Nevada and
Hawaii. During 1997 the Company acquired the Santa Ana and San Diego
franchises from BFS as well as purchasing the Tulsa and Oklahoma City
franchises from Hogan, Inc. The Atlanta franchise closed April 1997.

Sales to franchised and licensed retail stores and or sales to BFS through
January 31, 1997 were 4% and 14% of total sales for the fiscal years ended
September 30, 1998 and 1997, respectively.

(3) International Export Operations
--------------------------------

International export sales were also discontinued in connection with the
transfer of the Company's interest in Biogime International, Inc. to
certain shareholders.

Prior to the discontinuance, the Company had licensees in Sweden,
Guatemala, New Zealand, Korea, Norway, Denmark, Malaysia/Singapore, Hong
Kong, Spain, El Salvador, Thailand and Mexico. The Company considered
international licensee opportunities as long-term and devoted few of its
resources to this division.

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C. Competition

Biozhem competes with a large number of companies and product lines in the
states in which its products are sold. Many competitive companies are well
established and have research, financial and manufacturing capabilities and
other resources substantially greater than those of Biozhem. Retail
competition consists of major cosmetic companies such as Estee Lauder,
Clinique and Lancome and national retailers such as Body Shop and Garden
Botanica.

Biozhem has developed extensive training materials to acquaint retail store
employees with effective sales techniques and the various aspects of the
Company's products. In addition, the Company offers fewer products than
those of its national competitors, and its retail store employees therefore
focus on the sale of fewer types of products or product lines. As a
result, the Company believes its retail store employees have a greater
knowledge and understanding of the Company's products which permits a more
thorough and effective sales presentation from the retail store employee to
the customer.

D. Suppliers

The Company has an agreement with Arizona Natural Resources, Inc. ("ANR"),
whereby ANR produces for Biozhem a series of skin care formulations known
as Biozhem. By agreement, ANR is committed to supervise the manufacture
(including, without limitation, the bottling and packaging) of the multi-
step skin care formulations and other related skin care products, and to
produce and deliver to the Company the full requirements of the Company
with respect to those products. Biozhem is required to pay ANR an amount
per bottle ordered, as stipulated in the agreements, and all shipping and
delivery costs. The agreement does not contain provisions which would
require the Company to purchase minimum volumes thereunder. This agreement
is currently contracted on a month-to-month basis.

The Company maintains its inventory at a warehouse in San Juan Capistrano,
California. Additionally, small amounts of inventory are stocked at the
Company-owned retail stores. Inventory is financed through internally-
generated funds, its working capital line of credit and credit extended
from ANR. The majority of the inventory is sold for cash. Merchandise is
shipped directly from the San Juan Capistrano, California warehouse to
distributors or retail stores.

The Company extends a 90-day return policy which permits customers to
return merchandise on an initial order in exchange for cash (less a
restocking charge) or replacement merchandise.

E. Patents, Trademarks and Copyrights

The Company utilizes no patents or copyrights in connection with any of its
operations. The Company operates under a trademark registration for
"Biozhem". The trademarks "Biogime" and "Biogime Skin Care Center" were
being used in the United States until March 21, 1997. The service marks,
trade name Biogime, the design logo and the three Federal trade-mark
registrations relating to Biogime were transferred to Biogime in the
December 21, 1995, transfer of the Company's interest in Biogime to certain
shareholders. As part of this agreement, a consent agreement was signed by
the Company and Biogime allowing the Company to use the Biozhem mark
concurrently with Biogime's use of the Biogime marks. A service mark
application was filed on May 27, 1997 for Biozhem's "Advanced Skin Care
Solutions". Trade name and trade mark applications were also filed on May
27, 1997, for Biozhem, Biozhem Skin Basics, Biozhem Body Basics and Colour
Concepts by Biozhem. The Company seeks to protect its proprietary interests
in its products by applying for patents, trademarks and/or copyrights as
circumstances warrant.

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F. Government Regulations

Products
--------

Certain federal agencies regulate, among other things, the purity and
packaging of cosmetic products. Similar regulations are in effect in
various states. Manufacturers and distributors of cosmetic products are
also subject to the jurisdiction of the Federal Trade Commission with
respect to such matters as advertising content and other trade practices.
The Company has entered into private cosmetics labeling agreements only
with non affiliated manufacturers that manufacture products in a manner
which complies with such regulations and who have submitted or intend to
submit their products periodically to independent laboratories for testing.
However, the extent of potentially adverse governmental regulations which
might arise from future legislation or administrative action cannot be
predicted.

G. Employees and Consultants

Biozhem employs 12 full-time and 13 part-time persons, one of whom is an
officer and director of the Company.

ITEM 2. DESCRIPTION OF PROPERTY

The Company leases 2,400 square feet of office and warehouse space within a
business park setting in San Juan Capistrano, California. The Company also
leases retail space for each Company-owned retail center which it operates
as a Biozhem Skin Care Center in the various locations. Generally, retail
stores are located in small, upscale shopping centers with 700 to 1,000
square feet of space each. The total lease commitments are $204,000,
$129,000, $85,000, $51,000 and $17,000 in fiscal years 1999, 2000, 2001,
2002 and 2003, respectively.

ITEM 3. LEGAL PROCEEDINGS

The Company was sued on June 14, 1996, by Biogime International, Inc. (the
Plaintiff) in the United States District Court for the Southern District of
Texas, Houston, Texas, for damages related to alleged breaches of the
master transaction agreement and the standstill agreement signed in
December 1995. The Plaintiff claimed damages in the amount of at least
$100,000 for the Company's alleged failure to make required payments due
April 5, 1996, May 5, 1996, and June 6, 1996, under the master transaction
agreement and for the Company's failure to pay for legal fees called for in
the agreement. The plaintiff also claimed that the Company had violated the
standstill agreement by advertising in areas prohibited under the agreement
and requested that the Company be enjoined from further breaches of the
agreement. Attorney fees and court costs were also claimed in the suit by
the Plaintiffs. On November 20, 1996, a release and settlement agreement
was signed by the Company and the Plaintiff settling all claims and causes
of action that the companies had or in the future could have that were in
any way connected with the agreements. As a result of the settlement
agreement, the Company paid a one time amount to Biogime International,
Inc. of $20,000 and the plaintiff agreed to comply with certain competitive
restrictions. The plaintiff also agreed to provide certain documents and
signatures called for in the previous agreements. On February 18, 1997, an
agreed order of dismissal with prejudice was filed in the District Court
Harris County, Texas, 61st Judicial District.

The Company is subject to certain claims arising in the ordinary course of
business. In the opinion of management of the Company, the amounts
ultimately payable, if any, as a result of such claims will not have a
material adverse effect on the Company's financial position.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(1) Election of Board of Directors

An Annual Meeting of shareholders was held on August 18, 1998. The Board of
Directors was reelected and consists of John C. Riemann, Director/CEO,
Warren L. Hernand, Stan R. Wylie, Paul A. Reyff Sr., and Alan Goldsberry.

(2) Name Change of Corporation

The Board of Directors proposed that Article One of its Articles of
Incorporation be amended to change the name of the Company to "Biozhem
Cosmeceuticals, Inc." The Board felt that the proposed new name of the
Company would have various beneficial effects on the Company's image,
marketing efforts and public recognition. The final vote was 4,163,985 in
favor, 7,367 against and 41,255 abstained.

(3) Reclassification of Common Stock/Authorization of
Additional Common Stock/ Authorization of Preferred Stock

The Board of Directors proposed that Article Four of the Articles of
Incorporation be amended to (i) reclassify each share of issued and
outstanding Common Stock of the Company into one-fifth (1/5) of a share of
Common Stock, (ii) increase the number of authorized shares of Common Stock
to 100,000,000, (iii) authorize 10,000,000 shares of Preferred Stock, and
(iv) authorize the Board of Directors to establish series of Preferred
Stock by fixing and determining the designations, preferences, limitations
and relative rights, including voting rights, of the shares of any series
so established. The final vote was 4,007,882 in favor, 26,074 against and
41,075 abstained. Note - all share amounts have been adjusted throughout
this 10-KSB to reflect the 1 for 5 split.

(4) Eliminate Cumulative Voting

The Board of Directors proposed that Article Nine of the Articles of
Incorporation be amended to eliminate cumulative voting by shareholders in
the election of directors. If approved, in future elections of directors of
the Company, the holders of a majority of shares voting for the election of
directors can elect all the directors if they choose to do so, thereby
eliminating the possibility of the election, through the use of cumulative
voting rights, of one of more members to the Board of Directors by holders
of less than a majority of the shares for the election of directors. The
final vote was 3,619,771 in favor, 301,869 against and 41,695 abstaining.

(5) Limit Director Liability

The Board of Directors recommended that the shareholders consider and
approve a proposal to amend the Company's Articles of Incorporation to
include a new Article Ten. The proposed Article Ten would limit the
personal liability of the Company's directors to the Company or its
shareholders for monetary damages for certain acts or omissions by the
directors in their capacities as directors. The final vote was 4,164,348 in
favor, 6,424 against and 41,675 abstaining.

(6) Shareholder Action by Written Consent

The Board of Directors recommended that the Articles of Incorporation be
amended by adding a new Article Eleven. Article 9.10A of the TBCA provides
that the Articles of Incorporation of a Texas corporation may provide that
any action required by the TBCA to be taken at any annual or special
meeting of shareholders, or any action which may be taken at any annual or
special meeting of shareholders, may be taken without a meeting, without
prior notice, and without a vote, if a consent or consents in writing,
setting forth the action so

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taken, shall be signed by the holder or holders of shares having not less
than the minimum number of votes that would be necessary to take such
action at a meeting at which the holder of all shares entitled to vote on
action were present and voted. The final vote was 3,774,532 in favor,
259,544 against and 41,395 abstaining.

(7) Adoption of 1998 Stock Option Plan

On July 6, 1998, the Board of Directors of the company approved and
recommended for the submission to the shareholders for their adoption the
1998 Stock Option Plan of Entourage International, Inc., know known as
Biozhem Cosmeceuticals, Inc. (the "1998 Plan") which would be effective on
July 6, 1998 subject to the approval of the shareholders.

The purpose of the Plan is to provide the officers and employees of the
Company and its subsidiaries and other eligible individuals an incentive
through the grant of options to acquire stock in the Company and encourage
them to remain in the Company's service. The Plan would provide the Company
means to reward outstanding performance, enhancing its competitive position
and attracting and retaining key personnel.

Under the Plan, the Committee may, at any time prior to July 6, 2008 ,
grant to eligible persons either stock options or non-qualified stock
options for an aggregate of 1,000,000 shares of the Company's Common Stock.
Any unexercised or canceled stock options may be reoptioned under the Plan.
Although not eligible to receive grants of incentive stock options, members
of the Board of Directors of the Company who are not full-time employees of
the Company or one of its subsidiaries are eligible to receive grants of
options. Directors who are full-time employees of the Company or one of its
subsidiaries are eligible to receive grants of either incentive stock
options or other options.

Stock options granted under the Plan may be exercisable in whole or part at
any time or from time to time during their respective terms, but only to
the extent that they have vested and only by tendering to the Company
written notice of exercise accompanied by the purchase price. The final
vote was 4,013,448 in favor, 26,294 against and 41,755 abstaining.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

Historically, the Company's common stock was traded in the over-the-counter
market of NASDAQ under the symbol "ENTG". On January 23, 1991, the Company
was notified that its stock was delisted from the NASDAQ system because of
the limited number of firms making a market for the Entourage stock under
the NASDAQ system. Though there is still a limited market in the Company's
common stock now under the symbol "BZHM", there have been sporadic bid
prices quoted during fiscal year 1998. The following table sets forth the
high and low bid prices of Biozhem common stock for the periods shown.
Information on December, March and June quarters is not available.

Quarter Ended Bid Prices
------------- ----------
Low High

September 30, 1998 $.25 $.50
September 30, 1997 .40 .90

The above quotations reflect inter-dealer prices, without retail mark-up,
markdowns or commission, and may not necessarily reflect actual
transactions. The above quotations have been adjusted to reflect the 5 for
1 stock split at August 18, 1998 (see Note 10).

As of September 30, 1998, there were approximately 660 record holders of
the Company's common stock.

Biozhem has paid no dividends on its common stock and has no present plans
to do so. Biozhem's Board of Directors intends to retain earnings, if any,
to finance the growth and development of the business of Biozhem. Any
payment of cash dividends in the future will be at the discretion of the
Board of Directors and will depend upon the financial condition, capital
requirements and earnings, if any, of Biozhem, as well as other factors
which the Board of Directors may deem relevant.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PLAN OF OPERATION

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Investors are cautioned that such forward-looking statements
involve risks and uncertainties including without limitation the following:
(i) the Company's plans, strategies, objectives, expectations and
intentions are subject to change at any time at the discretion of the
Company; (ii) the Company's plans and results of operations will be
affected by the Company's ability to manage its growth and inventory; (iii)
the Company's business is highly competitive and the entrance of new
competitors into or the expansion of the operations by existing competitors
in the Company's markets and other operations in the retail climate could
adversely affect the Company's plans and results of operations; and (iv)
other risks and uncertainties indicated from time to time in the Company's
filings with the Securities and Exchange Commission.

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General
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The Company was sued by Biogime International, Inc. (BII) on June 14, 1996
for damages related to alleged breaches of certain agreements signed on
December 21, 1995. A settlement was reached on November 20, 1996 under
which the Company paid $20,000 to BII.

The Company closed two of its retail stores in September 1997. The closures
resulted in a charge of $16,000 for the write-off of leasehold improvements
and other assets, inventory, settlements of lease commitments, severance
payments and related legal fees. One store was closed at the end of its
lease period with the intention of being relocated to a large regional
mall. Its computer customer data base is being serviced currently by other
locations. The other store was closed permanently. The net sales for the
two closed locations were less than $153,000 in 1997.

On January 31, 1997, the Company, through a wholly owned subsidiary,
entered into an agreement and plan of merger with the shareholders of
Biogime Franchise Services USA, Inc. (BFS), a company owned by an
Officer/Director of the Company. As a result of the merger, the Company
acquired all of the assets of BFS, amounting to $273,895, and assumed all
the liabilities of BFS, amounting to $184,700. The assets included a
$175,000 promissory note payable by the Company to BFS which was due on
demand. Following the merger, this indebtedness was canceled. The merger
consideration consisted of 1,500,000 shares of common stock issued to the
shareholders of BFS.

The merger was accounted for as a purchase and, accordingly, the operations
of BFS have been included in the consolidation statement of operations
beginning February 1, 1997. Goodwill arising from the transaction amounted
to $210,805 and is being amortized on a straight line basis over 10 years.

The acquisition was accounted for as a purchase. Accordingly, the purchase
consideration was allocated to the acquired assets on the basis of
estimated fair value and the operations of the retail stores acquired are
included in the consolidated statement of operations beginning July 1,
1997. Goodwill, a covenant not to compete and customer list of $50,155,
$20,000, and $15,000, respectively, were recorded in connection with this
transaction. (Note 5)

On August 18, 1998, the Company's shareholders voted in favor of
reclassifying each share of issued Common Stock of the Company into one-
fifth (1/5) of a share of Common Stock.

Liquidity
---------

The Company has experienced severe liquidity shortages beginning in August
1994. A lack of growth in direct sales, lower than anticipated retail sales
and profitability due to limited marketing and the need for a new
infomercial and legal expenses incurred in connection with the BII transfer
have contributed to the deterioration of the Company's liquidity and
capital position. Current liabilities exceeded current assets by

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$279,361 and $135,918 at September 30, 1998 and September 30, 1997,
respectively. In addition, cash balances were $0 at September 30, 1998 and
1997.

In connection with the disposal of the discontinued operations, trade
payables and debt of approximately $272,000 and $200,000 respectively, were
assumed by Biogime (BII) in 1996. Subsequent to the disposal, Biogime
Franchise Services (BFS), a related party, loaned the Company approximately
$200,000. The loan was subordinate to certain vendor financing, bore
interest at 8% per annum and was due on demand. $175,000 of the
indebtedness was canceled in connection with the Company's acquisition of
BFS in January 1997.

On January 30, 1997, the Company issued a total of 573,500 shares of common
stock as follows: 75,000 shares were issued in lieu of a cash payment for
director fees totaling $15,000; 69,750 shares were issued in lieu of a cash
payment to a director for financial consulting services totaling $13,950;
228,750 shares were issued in lieu of a cash payment to Iamco Financial
Corp., a company owned by a director, for corporate consulting and advisory
services totaling $45,750; 200,000 shares were awarded an officer/director
as a bonus for the accomplishment of specific activities totaling $40,000.
On June 23, 1997, 40,000 shares were issued in lieu of cash payments for
legal fees totaling $10,000.

During 1997, the Company issued 1,500,000 shares of the Company's common
stock, valued at $300,000, in connection with the acquisition of BFS. In
addition, the Company raised $410,000 through a private placement sale of
1,730,000 shares of the Company's common stock.

During 1998, the Company sold 366,667 shares of its common stock. Proceeds
to the Company were $105,000, net of offering costs of $0.

During 1998, the Company committed 356,666 shares of common stock for
$121,950. In connection with this offering, the Company issued 52,319
shares of its previously unissued common stock and paid $5,502 as offering
costs.

On September 15, 1998, the Company issued a total of 16,668 shares of
common stock for consulting fees to an outside firm at a share price of
$.50 for a total of $8,334. On September 30, 1998, the Company issued a
total of 554,761 shares of common stock as follows: 463,096 shares were
issued to shareholders to convert $127,352 of debt to equity and an
additional cost of $34,885 as a result of the inducement to convert, 91,665
shares of common stock were issued in lieu of cash payment for unpaid
directors' fees for a total of $45,833.

On December 28, 1998, the Company signed a new note with Eldorado Bank,
with an interest rate at prime plus 3%, with terms as follows: interest
only through January 1999, 1 principal payment of $10,000 plus interest on
February 1, 1999, 1 principal payment of $15,000 plus interest on March 1,
1999, 1 principal payment of $15,000 plus interest on April 1, 1999 and a
final principal and interest payment of $9,585.10 on May 1, 1999. The
Company must still rely primarily on operating cash flow and cash
management to sustain its operations. The Company's 1999 operating plan
contemplates improved operating results and cash flow. Subsequent to year
end, the Company has completed an additional equity financing of $16,000 in
private placement and is actively pursuing additional financing sources. If
management cannot achieve its 1999 operating plan because of sales
shortfalls or other unfavorable events, the Company may find it necessary
to further reduce expenses or undertake other actions as may be
appropriate.

The Company believes that the cash generated from operating activities,
trade credit and private placements will be sufficient to fund its
operations for the next twelve months, however, there can be no assurance
that this will be the case. See "Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995."

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Operations - 1998 Compared to 1997
----------------------------------

Biozhem incurred a loss from continuing operations of $534,382 in 1998
compared to a loss from continuing operations of $190,744 in 1997.

Net sales in 1998 showed an increase of approximately $3,600 over 1997. The
Company closed two retail stores and acquired four franchise locations in
1997, which reflects the impact of an increase in retail sales of
approximately $109,000, offset by a decrease in franchise sales of
approximately $105,400. Average monthly sales per Company owned store
remained constant at $13,000 in 1998 and 1997. Company owned stores
accounted for 96% and 86% of total net sales in 1998 and 1997,
respectively. Franchised and licensed stores accounted for 4% and 14% of
total net sales in 1998 and 1997, respectively.

Gross profit in 1998 decreased by $10,096 or 1% as compared to the
corresponding amount for 1997. Gross profit as a percentage of net sales
decreased slightly to 81% in 1998 from 82% in 1997. Gross profit as a
percentage of net sales at Company owned stores was 82% and 85% in 1998 and
1997, respectively, and 54% and 62%, respectively, for sales to franchise
stores.

Selling, general and administrative expenses increased by $290,272 or 27%,
in 1998 as compared to 1997 due primarily to the following. Payroll and
payroll tax expense increased approximately $53,500 in 1998 due to the
acquisition of two retail stores in July 1997. Local advertising , catalogs
and monthly mailings, increased approximately $52,000 to $80,000 in 1998
compared to approximately $28,000 in 1997. Consulting fees increased
approximately $18,600 to $24,600 in 1998 compared to $6,000 in 1997.
Insurance expense was approximately $6,400 in 1998 compared to a negative
expense in 1997 of $13,600 due to a refund from the Company's carrier.
Meeting expense increased $12,100 due to the Company's annual meeting held
in August 1998. Directors fees were $45,833 in 1998 compared to $0 in 1997.
Shareholder communication expense was $12,644 in 1998 compared to $0 in
1997 due to the Company's annual meeting held in August 1998.

Depreciation and amortization increased in 1998 by $23,379 as compared to
1997. The increase was due primarily to the acquisition of two retail
stores in February 1997 and two in July 1997 and the amortization of
goodwill for a full twelve months in 1998 compared to eight months and
three months in 1997.

Interest expense increased by $15,253 in 1998 as compared to 1997. The
increase was due primarily to the increase in debt the Company incurred in
1998.

At September 30, 1998, the Company had a federal net operating loss
carryforward of approximately $4,135,000. If not used to offset future
taxable income, these loss carryforwards will expire between 2002 and 2012.
Pursuant to the Tax Reform Act of 1986, use of the Company's net operating
loss carryforwards may be substantially limited if a cumulative change in
ownership of more than 50% occurs within a prescribed testing period.
Equity transactions in 1996 and 1997 may have resulted in such a change and
would likely result in a limitation of the amount of net operating loss
that may be used annually. Further, the limitation may render a substantial
portion of the Company's net operating loss carryforwards unusable.

Based on numerous factors but not limited to the Company's historical
losses, management believes that it cannot demonstrate that it is more
likely than not that it will fully realize all of the benefits of deferred
tax assets existing at September 30, 1998. Accordingly, a valuation
allowance has been provided for the full amount of the Company's deferred
tax assets.

12
<PAGE>

Year 2000
---------

The Company is currently assessing computer hardware and software
difficulties that may be experienced in connection with the so-called "Year
2000" problems. The Company currently relies upon computer hardware and
software systems from various third party vendors to manage critical
functions of the Company. Internally generated software systems do not
comprise a material element of the Company's information technology. The
Company is in the process of securing from third party software and
hardware vendors, including providers of telephone services, certificates
of compliance with Year 2000 issues for currently installed systems that
are material to the Company's operations. At this time, the Company expects
that its key information technology vendors will be compliant with Year
2000 requirements. A failure by a third party vendor to adequately address
the Year 2000 issue could have a material adverse effect on the Company. In
addition, the magnitude of certain risks, for example those associated with
embedded chips, are unknown at this point, and could nevertheless have a
material adverse impact on the Company and other companies in its industry.

13
<PAGE>

Item 7: Financial Statements

<S> <C>
Reports of Independent Auditors.........................................15-16

Consolidated Financial Statements
- ---------------------------------

Consolidated Balance Sheets as of September 30, 1998 and 1997..............17
Consolidated Statements of Operations Years ended
September 30, 1998 and 1997................................................18
Consolidated Statements of Stockholders' Equity Years ended
September 30, 1998 and 1997................................................19
Consolidated Statements of Cash Flows Years ended
September 30, 1998 and 1997................................................20
Notes to Consolidated Financial Statements..............................21-32

</TABLE>

14
<PAGE>

Report of Independent Auditors

Board of Directors and Stockholders
Biozhem Cosmeceuticals, Inc.

We have audited the accompanying consolidated balance sheet of Biozhem
Cosmeceuticals, Inc., formerly Entourage International, Inc. and its subsidiary,
(the Company) as of September 30, 1998 and the related consolidated statements
of operations, stockholders' equity and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the management
of Biozhem Cosmeceuticals, Inc. Our responsibility is to express an opinion on
these consolidated financial statements 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 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Biozhem
Cosmeceuticals, Inc. and its subsidiary at September 30, 1998 and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully disclosed in
Note 1 to the consolidated financial statements, the Company's recurring
operating losses and working capital deficiency raise substantial doubt about
its ability to continue as a going concern. Management's plans as to these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

Corbin & Wertz

Irvine, California
November 20, 1998,
except as to Note 6, which is as of December 28, 1998

15
<PAGE>

Report of Independent Auditors

Board of Directors and Stockholders
Biozhem Cosmeceuticals, Inc.

We have audited the accompanying consolidated balance sheet of Biozhem
Cosmeceuticals, Inc., formerly known as Entourage International, Inc., and its
subsidiary (the Company) as of September 30, 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for the year 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 audit.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Biozhem
Cosmeceuticals, Inc. and its subsidiary at September 30, 1997 and the
consolidated results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully disclosed in
Note 1 to the consolidated financial statements, the Company recurring operating
losses and working capital and stockholders' equity deficiencies raise
substantial doubt about its ability to continue as a going concern. Management's
plans as to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

Ernst & Young LLP

Orange County, California
November 14, 1997, except for Note 12 as to which
the date is December 5, 1997

16
<PAGE>

Biozhem Cosmeceuticals, Inc.

Consolidated Balance Sheets

<TABLE>
<CAPTION>
September 30,
1998 1997
-----------------------------------
<S> <C> <C>
Assets
Current assets:
Trade accounts receivable $ 3,002 $ 9,377
Inventory 90,322 77,302
Prepaid expenses and other current assets 5,238 2,122
-----------------------------------
Total current assets 98,562 88,801

Property and equipment, net 62,140 77,493

Intangible assets, net 288,598 280,006

Other assets 72,001 23,829
-----------------------------------
$ 521,301 $ 470,129
===================================

Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 212,919 $ 112,795
Notes payable and line of credit 118,069 86,609
Current portion of long-term debt 46,935 25,315
-----------------------------------

Total current liabilities 377,923 224,719

Long-term debt, less current portion 93,835 99,337

Commitments and contingencies

Stockholders' equity:
Preferred stock, $1.00 par value:
Authorized shares - 10,000,000
Issued and outstanding - none - -
Common stock, $.001 par value:
Authorized shares 100,000,000
Issued and outstanding shares - 4,945,282 and
4,578,615 at September 30, 1998 and 1997, respectively 4,945 4,579

Common stock subscribed, $.001par value - 980,414 shares 980 -
Additional paid-in capital 4,252,412 3,815,906
Accumulated deficit (4,208,794) (3,674,412)
-----------------------------------
Total stockholders' equity 49,543 146,073
-----------------------------------
$ 521,301 $ 470,129
===================================
</TABLE>
See independent auditors reports and accompanying notes to the consolidated
financial statements.

17
<PAGE>

Biozhem Cosmeceuticals, Inc.

Consolidated Statements of Operations

<TABLE>
<CAPTION>
Years ended September 30,
1998 1997
-----------------------------

<S> <C> <C>
Net sales $1,160,757 $1,157,196
Cost of sales 223,258 209,601
-----------------------------
Gross profit 937,499 947,595

Expenses:
Selling, general and administrative 1,371,552 1,081,280
Depreciation 25,465 25,683
Amortization 42,086 18,489
-----------------------------
Total operating expenses 1,439,103 1,125,452
-----------------------------

Operating loss (501,604) (177,857)
Interest expense (32,792) (17,539)
Other income 14 4,652
-----------------------------

Loss from operations (534,382) (190,744)

-----------------------------
Net loss $ (534,382) $ (190,744)
=============================

Net loss per common and common equivalent share basic
and diluted $(.11) $(.07)
=============================
</TABLE>

See independent auditors reports and accompanying notes to the consolidated
financial statements..

18
<PAGE>

Biozhem Cosmeceuticals, Inc.
Statements of Shareholders' Equity
Years Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Additional
Committed Common Paid in Accumulated
Common Stock Stock Capital Deficit Total
--------------------------------------------------------------------------------------
Shares Amount Shares Amount Amount Amount Amount
--------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1996 735,115 $ 735 - $ - $2,985,050 $(3,483,668) $(497,883)

Common stock issued 3,843,500 3,843 830,857 834,700

Net loss - (190,744) (190,744)
----------------------------------------------------------------------------------------
Balances at September 30, 1997 4,578,615 $4,578 - $ - $3,815,907 $(3,674,412) $ 146,073
----------------------------------------------------------------------------------------
-
Stock Issuance 366,667 367 104,633 105,000

Shares committed to investors, -
net of offering costs
of $5,502 356,666 356 116,092 116,448

Shares committed for
Offering costs 52,319 52 (52) -

Shares committed for
consulting fees 16,668 17 8,317 8,334

Shares committed upon
conversion of debt, including 463,096 463 161,774 162,237
$34,885 of expense as a result
inducement

Share committed for
Services 91,665 92 45,741 45,833

Net loss (534,382) (534,382)
----------------------------------------------------------------------------------------
Balances at September 30, 1998 4,945,282 $4,945 980,414 $980 $4,252,412 $(4,208,794) $ 49,543
========================================================================================

See independent auditors reports and accompanying notes to the consolidated financial statements.

</TABLE>

19
<PAGE>

Biozhem Cosmeceuticals, Inc.

Statements of Cash Flows

Years ended September 30,
1998 1997
--------------------------------
<S> <C> <C>
Operating activities
Net loss $(534,382) $(190,744)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 67,551 44,172
Loss on disposals of property and equipment - 3,816
Common stock issued for services 54,167 124,700
Expense recorded as a result of induced conversion of debt 34,885 -
Changes in operating assets and liabilities
Trade accounts receivable 4,764 (4,568)
Inventory (13,020) (20,554)
Prepaid expenses and other (3,116) (9,058)
Other assets (48,172) -
Accounts payable and accrued liabilities 100,124 (236,315)
--------------------------------
Net cash used in operating activities (337,199) (288,551)

Investing activities
Purchases of property and equipment (10,112) (11,059)
Acquisitions - (8,362)

Net cash used in investing activities (10,112) (19,421)

Financing activities
Common stock issued 221,448 410,000
Proceeds from borrowing 274,171 131,205
Repayment of long-term debt (148,308) (233,233)
Net cash provided by financing activities 347,311 307,972
--------------------------------
Net decrease in cash - -

Cash at beginning of year - -
--------------------------------
Cash at end of year $ - $ -
================================
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 32,792 $ 17,539
================================
Supplemental schedule of non-cash investing and
financing activities:
Conversion of debt into common stock $ 127,352 $ -
Issuance on debt for the acquisition of
an intangible $ 49,067 $ 49,095
Write-off of accounts receivable in connection with
intangible acquisition $ 1,611 $ -
Common stock issued for acquisition $ - $ 300,000
</TABLE>

See independent auditors reports and accompanying notes to consolidated
financial statements.

20
<PAGE>

Biozhem Cosmeceuticals, Inc.
Notes to Consolidated Financial Statements
For the Years Ended September 30, 1998 and 1997

1. Organization

Description of the Company

Biozhem Cosmeceuticals, Inc. (the Company), formerly known as Entourage
International, Inc., and subsidiary markets and distributes consumer
products (primarily skin care products) through retail stores which are
Company-owned or operated by franchisees in California, Texas, Colorado,
Arizona, Oklahoma, Nevada and Hawaii.

During 1997, as described further in (Note 3), the Company acquired four
retail stores from franchisees.

2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements for the years ended September 30,
1998 and 1997 (see Note 3) include the accounts of Biozhem Cosmeceuticals,
Inc. and BFS Acquisition Corp. All significant intercompany accounts and
transactions have been eliminated in consolidation.

The Company's consolidated financial statements have been presented on the
basis that it will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business. The Company reported a loss from operations of $534,382
for the year ended September 30, 1998 and has a working capital deficiency
of $279,361 as of September 30, 1998.

The Company's continued existence is dependent upon its ability to achieve
its 1999 operating plan, which contemplates significantly improved
operating results and cash flow and to obtain additional financing. There
can be no assurances that the Company will be successful in these regards.
Since September 30, 1998, the Company has received an additional $16,000 in
equity financing.

If management cannot achieve the 1999 operating plan because of sales
shortfalls or other unfavorable events, the Company may find it necessary
to further reduce expenses or undertake other actions as may be
appropriate.

The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

Revenue Recognition and Concentration of Credit Risk

Sales to franchisees are recorded when products are shipped. Sales by
Company-owned retail stores are recorded when sold to a retail customer.
Provisions are made for estimated returns and allowances at the time of
sale.

At September 30, 1998, accounts receivable totaled $3,002. Credit risk is
considered by management to be minimal.

Use of Accounting Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions and
estimates that affect the amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of the revenues and expenses during the
reported period. Actual results could differ from those estimates.

21
<PAGE>

Biozhem Cosmeceuticals, Inc.
Notes to Consolidated Financial Statements
For the Years Ended September 30, 1998 and 1997

Fair Value of Financial Instruments
The Company has financial instruments whereby the fair market value of the
financial instruments could be different than that recorded on a historical
basis. The Company's financial instruments consist of its trade accounts
receivable, accounts payable, notes payable and line of credit and long-
term debt. The carrying amounts of the Company's financial instruments
generally approximate their fair values at September 30, 1998. The fair
values of the notes payable were not readily determinable as market
comparables were not available for such instruments.

Year 2000
The Company is currently assessing computer hardware and software
difficulties that may be experienced in connection with the so-called "Year
2000" problems. The Company currently relies upon computer hardware and
software systems from various third party vendors to manage critical
functions of the Company. Internally generated software systems do not
comprise a material element of the Company's information technology. The
Company is in the process of securing from third party software and
hardware vendors, including providers of telephone services, certificates
of compliance with Year 2000 issues for currently installed systems that
are material to the Company's operations. At this time, the Company expects
that its key information technology vendors will be compliant with Year
2000 requirements. A failure by a third party vendor to adequately address
the Year 2000 issue could have a material adverse effect on the Company. In
addition, the magnitude of certain risks, for example those associated with
embedded chips, are unknown at this point, and could nevertheless have a
material adverse impact on the Company and other companies in its industry.

Inventory
Inventory consists mainly of skin care products which are stated at the
lower of cost or market using the first-in, first-out method. The Company
purchases a majority of its inventory from one vendor. These items are
readily available from other vendors. However, a change in supplier could
cause delays in product delivery and possible losses in revenue which could
adversely affect operating results. Market is determined by comparison with
recent purchases or net realizable value. Such net realizable value is
based on forecasts for the sales of the Company's products in ensuing
years. Should demand for the Company's products prove to be significantly
less than anticipated, the ultimate realizable value of the Company's
inventories could be substantially less than the amount shown on the
accompanying consolidated balance sheet.

Property and Equipment
Property and equipment are stated at cost. Expenditures for additions and
major improvements are capitalized. Repairs and maintenance costs are
charged to operations as incurred. When property and equipment are retired
or otherwise disposed of, the related cost and accumulated depreciation are
removed from the accounts, and gains or losses from retirements and
dispositions are credited or charged to income.

Depreciation and amortization are provided over the estimated useful lives
of the related assets, ranging from 3 to 5 years, using the straight-line
method. Leasehold improvements are amortized over the lesser of the
estimated useful life of the asset or the term of the lease. Depreciation
expense amounted to $24,465 and $25,683 for the years ended September 30
1998 and 1997, respectively.

Management of the Company assesses the recoverability of property and
equipment by determining whether the depreciation and amortization of such
assets over their remaining lives can be recovered through projected
undiscounted cash flows. The amount of impairment, if any, is measured
based on fair value (projected discounted cash flows) and is charged to
operations in the period in which such impairment is determined by
management. Management has determined that there is no impairment of
property and equipment at September 30, 1998.

22
<PAGE>

Biozhem Cosmeceuticals, Inc.
Notes to Consolidated Financial Statements
For the Years Ended September 30, 1998 and 1997

Intangible Assets

Intangible assets consist of covenants not to compete, customer lists and
goodwill arising from business combinations (Note 3) and are amortized on a
straight-line basis. The covenants are amortized over the contractual term
of 3 years. The customer lists are amortized over the expected benefit life
of 3 years. Goodwill, representing the excess of the purchase price over
the estimated fair market value of the net assets of the acquired business,
is amortized over the period of expected benefit of 10 years. The carrying
value for goodwill is reviewed if the facts and circumstances suggest that
it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based upon discounted cash flows of the entity
acquired over the remaining amortization period, the carrying value of the
goodwill is reduced to estimated fair value. Amortization expense amounted
to $42,086 and $18,489 for the years ended September 30, 1998 and 1997,
respectively.

The Company assesses the recoverability of these intangible assets by
determining whether the amortization of the asset's balance over its
remaining life can be recovered through projected undiscounted future cash
flows. The amount of impairment, if any, is measured based on fair value
and charged to operations in the period in which the impairment is
determined by management. Management has determined that there was no
impairment of intangible assets as of September 30,1998.

Advertising

Advertising costs are expensed as incurred. Advertising costs amounted to
$81,048 and $28,165 in 1998 and 1997, respectively. Infomercial costs will
be expensed at the time of first airing.

Income Taxes

The Company provides for income taxes under the liability method.
Accordingly, deferred tax assets and liabilities are computed for
differences between the financial statement carrying amounts and tax bases
of assets and liabilities that will result in taxable or deductible amounts
in the future based on enacted tax laws and rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to
amounts which are more likely than not to be realized. The provision for
taxes represents the tax payable or refundable for the period plus or minus
the change during the period in deferred assets and liabilities.

Per Share Amounts

Per share amounts are computed by dividing the applicable operating
statement caption amount by the weighted average number of common and
dilutive common equivalent shares outstanding during the respective
periods. Common equivalent shares consist primarily of stock options and
have been excluded from the computation of weighted average shares because
their effect would be antidilutive in each of the respective years.
Weighted average shares outstanding amounted to 4,766,317 in 1998 and
2,796,235 in 1997. During 1998, the Company effected a 1 for 5 exchange of
the Company's common stock (Note 10). All per share amounts in these
consolidated financial statements have been restated to reflect the 1 for 5
exchange.

23
<PAGE>

Biozhem Cosmeceuticals, Inc.
Notes to Consolidated Financial Statements
For the Years Ended September 30, 1998 and 1997

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share ("EPS"). SFAS No. 128 requires dual presentation of basic EPS and
diluted EPS on the face of all income statements issued after December 15,
1997 for all entities with complex capital structures. Basic EPS is
computed as net income divided by the weighted average of common shares for
the period. Diluted EPS reflects the potential dilution that could occur
from common shares issued through stock options, warrants and other
convertible securities. Both years presented have been restated to adopt
the provisions of SFAS No.128. There was no effect on the per share amounts
for either period as a result of the adoption of SFAS No. 128.

Stock Based Compensation

During 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123").
"Accounting for Stock-Based Compensation", which defines a fair value
based method of accounting for stock-based compensation. However, SFAS 123
allows an entity to continue to measure compensation cost related to stock
and stock options issued to employees using the intrinsic method of
accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB
25"), "Accounting for Stock Issued to Employees". Entities electing to
remain with the accounting method of APB 25 must pro forma disclosures of
net income and earnings per share, as if the fair value method of
accounting defined in SFAS 123 had been applied. The Company has elected
to account for its stock-based compensation to employees under APB 25.

Recent Accounting Pronouncements

In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
and SFAS No. 131. Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 130 requires that an enterprise report, by major
components and as a single total, the change in its net assets during the
period from nonowner sources: and SFAS No. 131 establishes annual and
interim reporting standards for an enterprise's operating segments and
related disclosures about its products, services, geographic areas and
major customers. Adoption of these statements will not impact the Company's
financial position, results of operations or cash flows and any effect will
be limited to the form and content of its disclosures. Both statements are
effective for fiscal years beginning after December 15, 1997, with earlier
application permitted.

Reclassifications
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform to the 1998 presentation.

3. Acquisitions, Dispositions and Other

On January 31, 1997, the Company, through a wholly owned subsidiary, BFS
Acquisition Corp., ("BAC"), entered into an agreement and plan of merger
with the shareholders of Biogime Franchise Services (USA), Inc., ("BFS"),
whereby BFS was merged into BAC. (Note 8).

As a result of the merger, BAC acquired all the assets of BFS amounting to
$273,895 and assumed all of the liabilities of BFS in the amount of
$184,700. The assets included a $175,000 promissory note payable by the
Company to BFS which was due on demand. Following the merger, this
indebtedness was canceled. The merger consideration consisted of 1,500,000
shares of common stock issued to the shareholders of BFS.

The value of the merger consideration as determined by trading prices and
quotations for the Company's common stock at the time of the merger was
approximately $300,000, which represented the business judgment

24
<PAGE>

Biozhem Cosmeceuticals, Inc.
Notes to Consolidated Financial Statements
For the Years Ended September 30, 1998 and 1997

of the Company'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 Company in this transaction and the related financial condition,
liquidity and operating results of the Company.

The merger was accounted for as a purchase and, accordingly, the operations
of BFS have been included in the consolidated statement of operations
beginning February 1, 1997. Goodwill arising from the transaction amounted
to $210,805 and is being amortized on a straight line basis over 10 years.

On July 1, 1997, the Company acquired the assets of two retail stores from
a franchisee for consideration of $107,155, consisting of a promissory note
in the amount of $49,095 (note 7), forgiveness of liabilities due to the
Company of $55,060 and assumption of liabilities in the amount of $3,000.
The note bears interest at 8% per annum with principal and interest
payments due monthly from July 15, 1997 through July 15, 2000.

The proforma results of operations for 1997, assuming BFS and the acquired
franchised retail stores had been acquired as of the beginning of the
respective years, are as follows:

September 30
1997
------------
Revenue $1,436,849
Net loss before extraordinary gain (141,441)
Net income (loss) after extraordinary gain (141,441)
Loss per share before extraordinary gain (.05)
Earnings (loss) per share after extraordinary gain (.05)

On December 5, 1997, the Company executed a settlement agreement with the
owners, one of which is a director of the Company, of a closed franchise
location. Pursuant to the agreement, the company acquired the franchise
customer database in exchange for the issuance of a non-interest bearing
promissory note in the amount of $59,855 and a warrant to purchase 17,000
shares of the company's common stock for $.40 per share. The note is due
in 30 monthly installments of $1,995 from January 1998 through June 2000
and the warrant is exercisable at anytime prior to its expiration on
December 5, 2000. The Company discounted the promissory note to $49,067
utilizing a 16% interest rate and wrote off $1,611 of receivable related to
the franchise location. Consequently, the Company recorded $50,678 of
goodwill which is being amortized on a straight line basis over 10 years.

25
<PAGE>

Biozhem Cosmeceuticals, Inc.
Notes to Consolidated Financial Statements
For the Years Ended September 30, 1998 and 1997

4. Property and Equipment

Property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated useful
September 30, lives
1998 1997 (in years)
-------------------------------------------------------
<S> <C> <C> <C>
Leasehold improvements $ 91,332 $ 91,332 3
Equipment 112,998 106,385 3
Software 31,687 28,188 5
------------------------------
236,017 225,905
Accumulated depreciation (173,877) (148,412)
------------------------------
$ 62,140 $ 77,493
==============================
</TABLE>

5. Intangible Assets

Intangibles assets consist of the following:

<TABLE>
<CAPTION>
September 30,
1998 1997
---------------------------------
<S> <C> <C>
Goodwill $311,638 $260,960
Customer lists 15,000 15,000
Covenant not-to-compete 20,000 20,000
Trademark 2,535 2,535
---------------------------------
349,173 298,495

Accumulated amortization (60,575) (18,489)
---------------------------------
$288,598 $280,006
---------------------------------
</TABLE>

26
<PAGE>

Biozhem Cosmeceuticals, Inc.
Note to Consolidated Financial Statements
For the Years Ended September 30, 1998 and 1997

6. Notes Payable and Line of Credit

Notes payable consist of the following at September 30,

<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Line of credit payable to Eldorado Bank, interest at prime plus 2 50,651
1/2%, principal and interest due on September 1, 1998. secured by -
substantially all assets of the Company and guaranteed by
the Company's president.

Note payable to vendor, secured by accounts receivable and inventory 7,320 -

Note payable to JCR Advertising (Note 8), interest at 8%, principal 27,985 6,504
and interest payable monthly from February 15, 1997 through
January 15, 1998, collateralized by the Company's assets.
Currently past due.

Notes to various shareholders, interest at 10%, principal and 27,267 73,592
interest are due on demand.

Other 4,846 6,513
------------------------
$118,069 $86,609
========================
</TABLE>

27
<PAGE>

Biozhem Cosmeceuticals, Inc.,
Notes to Consolidated Financial Statements
For the Years Ended September 30, 1998 and 1997

7. Long-term Debt

Long-term debt consisted of the following at September 30, 1998 and 1997 :

<TABLE>
<CAPTION>
1998 1997
---------------------------
<S> <C> <C>
Note payable to bank, interest at prime plus 3 1/2 %, principal $ 19,167 $ 29,167
payments of $833 plus interest are due through August 15, 2000

Note payable to seller of franchised retail stores (Note 3), 31,482 46,797
interest at 8%, principal and interest payments of $750 payable
from July 15, 1997 through August 15, 1997, principal and interest
payments of $1,538 payable monthly from September 15, 1997 through
July 15, 2000

Note payable to former franchisee for settlement agreement and 36,335 -
mutual release, imputed interest rate at 16%, principal and
interest of $1,995 payable from January 1, 1998 through June 1, 2000

Subordinated note payable to JCR Advertising (Note 8), interest at
8% collateralized by the Company's assets and due on demand 53,786 48,688
---------------------------
140,770 124,652
Less current portion (46,935) (25,315)
$ 93,835 $ 99,337
===========================
</TABLE>

Principal maturities are $46,935 and $93,835 for the years ending September 30,
1999 and 2000 respectively.

8. Related Party Transactions

Prior to January 31, 1997 the Company contracted with Biogime Franchise Services
(BFS) (Notes 3 and 7), a company owned by an officer/director of the Company, to
provide franchise services. Certain agreements between the Company and BFS
provided to BFS a sub-license to use certain trade marks, software, other
copyrighted materials and a franchise information system in order to further
develop the franchise program. BFS purchased from the Company all product
requirements for the franchise locations, based on an agreed upon pricing
schedule. Until its merger with the Company on January 31, 1997, sales to BFS
amounted to $79,645 for the year ended September 30, 1997.

The Company subleases a portion of its corporate office space to JCR Advertising
(JCR), a company owned by an officer/director. The Company received sublease
income of $13,656 and $14,360 for the twelve months ended September 30, 1998 and
1997, respectively.

28
<PAGE>

Biozhem Cosmeceuticals, Inc.
Notes to Consolidated Financial Statements
For the Years Ended September 30, 1998 and 1997

9. Income Taxes

Following is a reconciliation of federal income taxes computed at the statutory
rate of 34% to income tax expense as reported.

1998 1997
--------------------------------
Expected income tax benefit at 34% $(181,700) $(64,900)
Change in valuation allowance 181,700 64,800
Other - 100
--------------------------------
Income tax expense $ $
================================

Deferred tax assets consist of the following:

September 30
1998 1997
--------------------------------
Net operating loss carryforwards $ 1,406,000 $ 1,233,300
Depreciation and amortization 4,000 4,000
Intangibles 15,000 14,100
Accruals 4,000 2,000
--------------------------------
1,429,000 1,253,400
Less valuation allowance (1,429,000) (1,253,400)
--------------------------------
Net deferred taxes $ $
================================

Based on numerous factors, including but not limited to the Company's historical
losses, management believes that it cannot currently demonstrate that it is more
likely than not that it will fully realize all of the benefits of deferred tax
assets existing at September 30, 1998. Accordingly, a valuation allowance has
been provided for the full amount of the Company's deferred tax assets.

At September 30, 1998, the Company had a federal net operating loss carryforward
of approximately $4,135,000. If not used to offset future income, these loss
carryforwards will expire between 2002 and 2012. Pursuant to the Tax Reform Act
of 1986, use of the Company's net operating loss carryforwards may be
substantially limited if a cumulative change in ownership of more than 50%
occurs within a prescribed testing period. Equity transactions may have resulted
in such a change and would likely result in a limitation of the amount of net
operating loss that may be used annually. Further, the limitation may render a
substantial portion of the Company's net operating loss carryforward unusable.

10. Stock holders' Equity

Stock Issuances

29
<PAGE>

Biozhem Cosmeceuticals, Inc.
Notes to Consolidated Financial Statements
For the Years Ended September 30, 1998 and 1997

and 200,000 shares were awarded an officer/director as a bonus for the
accomplishment of specific activities totaling $40,000. On June 23, 1997,
40,000 shares of common stock were issued in lieu of cash payments for
legal fees totaling $10,000.

During 1998, the Company sold 366,667 shares of its common stock. Proceeds
to the Company were $105,000, net of offering costs of $0.

During 1998, the Company committed 356,666 shares of common stock for
$121,950. In connection with the commitment of 70,000 of these shares,
warrants to acquire 35,000 shares of common stock at $1.00 per share were
issued. These warrants expire September 30, 2001 and have piggyback
registration rights. In connection with this offering, the Company issued
52,319 shares of its previously unissued common stock and paid $5,502 as
offerings cost.

On September 15, 1998 the Company issued a total of 16,668 shares of common
stock for consulting fees to an outside firm at a share price of $.50 for a
total of $8,334. On September 30, 1998, the Company issued a total of
554,761 shares of common stock as follows: 463,096 shares were issued to
shareholders to convert $127,352 of debt to equity and an additional cost
of $34,885 as a result of the inducement to convert, 91,665 shares of
common stock were issued in lieu of cash for directors' fees for a total of
$45,833.

The Board of Directors proposed at its August 18, 1998 annual meeting that
Article Four of the Articles of Incorporation be amended to (i) reclassify
each share of issued and outstanding Common Stock of the Company into one-
fifth (1/5) of a share of Common Stock, (ii) increase the number of
authorized shares of Common Stock to 100,000,000, (iii) authorize
10,000,000 shares of Preferred Stock, and (iv) authorize the Board of
Directors to establish series of Preferred Stock by fixing and determining
the designations, preferences, limitations and relative rights, including
voting rights, of the shares of any series so established. The issue was
passed by the shareholders.

1998 Stock Option Plan

On July 6, 1998, the Board of Directors of the Company approved and
recommended for the submission to the shareholders for their adoption the
1998 Stock Option Plan of Biozhem Cosmeceuticals, Inc. (the "1998 Plan")
which would be effective on July 6, 1998 subject to the shareholders
approval. The 1998 Plan was approved on August 18, 1998. The purpose of the
Plan is to provide officers and employees of the Company and its
subsidiaries and other eligible individuals an incentive through grant of
options to acquire stock in the Company and encourage them to remain in the
Company's service.

Under the Plan, the Committee may, at any time prior to July 6, 2008, grant
to eligible persons either incentive stock options or non-qualified stock
options for an aggregate of 1,000,000 shares of the Company's Common Stock.
Any unexercised or canceled stock options may be reoptioned under the Plan.
Although not eligible to receive grants of incentive stock options, members
of the Board of Directors of the Company who are not full-time employees of
the Company or one of its subsidiaries are eligible to receive grants of
non-qualified options. Directors who are full-time employees of the Company
or one of its subsidiaries are eligible to receive grants of either
incentive stock options or non-qualified options. The Committee may issue
the options to different optionees subject to varying vesting requirements.
The exercise price of any options granted under the Plan may not be less
than 100% of the fair market value of the underlying shares of Common Stock
on the day the option is granted, except that, with respect to options
granted to persons owning more than 10% of the Common Stock on the date of
the grant at which time the price must be at least 110% of the fair market
value. The Plan was approved by a vote of the shareholders.

30
<PAGE>

Biozhem Cosmeceuticals, Inc.
Notes to Consolidated Financial Statements
For the Years Ended September 30, 1998 and 1997

During 1998, the Company granted options to purchase 50,000 shares at an
exercise price of $.30 to an employee. The options vest over a period of
three years and expire in ten years.

Activity in the 1998 Stock Option Plan for the year ended September 30,
1998:

Shares Price Range
------- -----------
Outstanding at September 30, 1997 -
Granted 50,000 $.30
Exercised -
Canceled -
Outstanding at ------
September 30, 1998 50,000 $.30
======
Exercisable at September 30, 1998 20,000 $.30
====== ====

SFAS 123 Pro Forma Information

Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
SFAS 123. The fair value for these options was estimated at the date of
grant using the Black Scholes option pricing model with the following
assumptions for the year ended September 30, 1998; risk free interest rate
of 7.2%; dividend yield of 0%; expected life of the option 5 years; and
volatility factor of the expected market price of the Company's common
stock of 0%.

The Black Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option vesting period. Adjustments
are made for options forfeited prior to vesting. There was no effect on
compensation expense, net loss, and net loss per share (basic and diluted)
had compensation costs for the Company's stock option plans been determined
based on fair value of the date of grant consistent with the provisions of
SFAS 123.

31
<PAGE>

Biozhem Cosmeceuticals, Inc.
Notes to Consolidated Financial Statements
For the Years Ended September 30, 1998 and 1997

Warrants

During fiscal 1998, the Company granted warrants to purchase 17,000 shares
of common stock to one non-employee of the Company. These warrants expire
through December 2000, and are at an exercise price of $.40. The charge to
operations as a result of this grant was diminutive. The warrant has
piggyback registration rights.

11. Commitments and Contingencies

Lease Obligations

The Company leases office and warehouse space in San Juan Capistrano,
California, and retail space in each city in which it has a retail store.
Rent expense in 1998 and 1997 was approximately $197,000 and $177,000,
respectively, and future commitments are approximately $217,000, $166,000 ,
$117,000, $83,000 and $50,000 in 1999, 2000, 2001, 2002 and 2003,
respectively.

Litigation

The Company was sued on June 14, 1996, by Biogime International, Inc. for
damages related to alleged breaches of the master transaction agreement and
the standstill agreement signed in December 1995. On November 20, 1996, a
settlement was reached and the Company paid Biogime $20,000.

The Company is subject to other claims arising from normal business
operations. Management believes that losses arising from these claims, if
any, will not have a material adverse effect on the Company's financial
position or results of operations.

Employee Benefits

The Company has a group medical plan which provides medical and hospital
benefits and term life insurance to its employees, including officers. This
coverage is provided at no cost to the employee, and the Company partially
pays the dependent coverage. The cost of group medical was approximately
$38,507 and $15,295 in 1998 and 1997, respectively.

Infomercial Agreement

The Company has an agreement with a production company that obligates the
Company to pay royalties based upon the sales made as a result of the
infomercial that is currently intended to air in 1999.

Fourth Quarter Adjustments

No material adjustments were made in the fourth quarter of 1998.
Adjustments were made in the fourth quarter of 1997 to accrue expenses
totaling $43,000.

32
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

On June 11, 1997, KPMG Peat Marwick, LLP, previously the principal
accountant for the Company, was dismissed and on June 16, 1997, Ernst &
Young was engaged as principal accountants. The decision to change
accountants was approved by the Board of Directors.

In connection with the audits of the two fiscal years ended September, 30,
1995, and the subsequent interim period through June 11, 1997, there were
no disagreements with KPMG Peat Marwick, LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or procedures, which disagreements if not resolved to their satisfaction
would have caused them to make reference in connection with their opinion
to the subject matter of the disagreement.

On September 15, 1998, Biozhem Cosmeceuticals, Inc. (the "Company")
received the written resignation of Ernst & Young LLP ("E&Y" ) as the
Company's independent auditors. E&Y informed the Company that due to the
Company's current size, which it is not consistent with E&Y's client base,
it is not economically feasible for them to continue the independent
auditor relationship.

In connection with the audits of the two most recent fiscal years ended
September 30, 1996 and September 30, 1997 and through the subsequent period
ended September 15, 1998, there were no disagreements with E&Y on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements if not
resolved to their satisfaction would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement.

E&Y's auditors' report on the consolidated financial statements of
Entourage International, Inc. as of and for the years ended September 30,
1996 and 1997, contained a separate paragraph stating that "the Company's
recurring operating losses and working capital and stockholders' equity
deficiencies raise substantial doubt about its ability to continue as a
going concern. Management's plans as to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty." This was the only
modification matter in E&Y's reports for the last two fiscal years.

As of October 30,1998, the Company engaged the firm of Corbin & Wertz as
the Company's independent auditors.

During the two most recent fiscal years ended September 30, 1997 and
through the subsequent period ended October 30, 1998, the Company has not
consulted with Corbin & Wertz regarding the application of an accounting
principle or the type of audit opinion that might be rendered. Corbin &
Wertz has had the opportunity to review the disclosure herein and has
indicated that they are in agreement with such information.

33
<PAGE>

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Director
Name Age Position Since
---- --- --------------------
John C. Riemann 58 Chairman 1991

Warren L. Hernand 62 Director 1995

Stan R. Wylie 56 Director 1995

Paul A. Reyff Sr. 68 Director 1995

Alan Goldsberry 46 Director 1995

John C. Riemann has been a director of Biozhem since June of 1991, and was
- ---------------
Executive Vice President of Biozhem from October 1991 to May 1994. In December
1995, he was elected Chairman, CEO and President of the Company. Mr. Riemann is
President and founder of Biogime Franchise Services, Inc., a company formed in
1994. Mr. Riemann was president of J.C.R. Enterprises which included two
Biogime franchise retail locations from 1987 to 1996.

Warren L. Hernand was a director of Entourage from 1991-1993, and has been a
- -----------------
director since 1995. He is currently president of IAMCO Financial Corporation, a
financial services company that he has owned since 1982.

Stan R. Wylie has been a director of Biozhem since December 1995. Since March
- -------------
1995 he has been a self employed financial consultant. Mr. Wylie was employed
from 1992 to 1995 by several related technology companies located in Houston and
Dallas areas. Mr. Wylie was Chief Financial Officer of Entourage from 1986 to
1991.

Paul A. Reyff Sr. has been a director of Biozhem since August 1996. Mr. Reyff
- -----------------
is a retired Navy captain and was employed by the Office of the Secretary of
Defense as a Business and Industry Specialist until April 1998. He has been
Chief Executive Officer of New England Investment Company since1979.

Alan Goldsberry has been a director of Biozhem since December 1995. Mr.
- ---------------
Goldsberry is the founder of Allied Waste Industries, Inc. a NASDAQ listed
company. After resigning in 1992, Mr. Goldsberry pursued a variety of business
ventures and currently advises executive management teams of fast growth
companies. Mr. Goldsberry is president of a recently formed investment company
for identifying and acquiring stock in emerging public companies.

34
<PAGE>

Board of Directors Meetings and Compensation
- --------------------------------------------

During the fiscal year ended September 30, 1998, the Board of Directors
held five meetings. All Board members attended all meetings held, either in
person or by telephone.

The Company paid each of its Directors - directors fees of $5,500 for
fiscal year ended September 30, 1998. In lieu of cash payments, the
Directors agreed to an issuance of 18,333 shares of the Company's stock
valued at $.30 per share.

Nominating Committee - this committee recommends candidates for the Board of
- --------------------
Directors and is comprised of Mr. Riemann and Mr. Hernand.

Acquisition Committee - this committee evaluates acquisition proposals and
- ----------------------
makes recommendations to the Board of Directors. The Acquisition Committee is
comprised of Mr. Riemann, Mr. Hernand and Mr. Wylie.

ITEM 10. EXECUTIVE COMPENSATION

Cash and Cash Equivalent Compensation

The following table and notes thereto set forth the aggregate of all
cash and cash equivalent compensation paid with respect to each of the two
fiscal years ended September 30, 1998 to each of the most highly
compensated officers:

ALL OTHER
PRINCIPAL COMPEN-
NAME POSITION(S) YEAR SALARY BONUS SATION **
- ---- ----------- ---- ------ ----- ---------

1998

John C. Riemann President/CEO 1998 $100,000 $ 0 $ 5,500
(since December 1995)

1997

John C. Riemann President/CEO 1997 $100,000 $ 0 $ 43,000

** On January 30, 1997, CEO John Riemann was awarded 200,000 shares of the
Company's common stock, valued at $.20 per share. An additional 15,000 shares of
the Company's common stock valued at $.20 per share were issued in lieu of a
cash payment for director's fees. On September 30, 1998, 18,333 shares of the
Company's common stock valued at $.30 per share were issued in lieu of cash
payment for director's fees.

Compensation Arrangements

Mr. Riemann's annual salary as Chairman, CEO and President of the Company
is $100,000. The Company has no employment agreement with Mr. Riemann.

Biozhem has a group medical plan which provides medical and hospital
benefits and term life insurance to its employees, including its officers.
This coverage is provided at no cost to the employee and Biozhem partially
pays the dependent coverage.

35
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Principal Shareholders

The table set forth below contains certain information, as of
September 30, 1998, regarding beneficial ownership of the Common Stock by each
person who is known by Biozhem to own beneficially more than 5% of its Common
Stock:

Number of Number of Total Number Percent of
Name and Address Shares Other Shares of Total Shares Class
of Beneficial Owned of Owned Owned Beneficially
Owner Record Beneficially Beneficially (a) Owned
- ----------------- -------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>

John C. Riemann 716,581 0 716,581 12.1%
c/o Biozhem Cosmeceuticals Inc.
32240 Paseo Adelanto, Ste. A
San Juan Capistrano, CA 92675

Brian P. Burns 620,000 0 620,000 10.5%
100 Bush Street, Ste. 1250
San Francisco, CA 94104

Paul A. Reyff Sr. 331,271 0 331,271 5.6%
36 Cove Court
Napa, CA 94559

Paul A. Reyff Jr. 331,200 0 331,200 5.6%
210 Atherton Ave.
Atherton, CA 94027

Michael Sabo 377,251 0 377,251 6.4%
1301 Spring Street, Ste. 5B
Seattle, WA 98104
</TABLE>

(a) Unless otherwise indicated, all securities listed in this table are owned
beneficially and of record by the persons indicated, who possess sole
voting and investment powers as to such securities, subject to community
property laws where applicable. The data concerning beneficial ownership
is based upon information furnished by the persons named above (unless the
person has not responded to requests for information) and contained in the
Company's records.

36
<PAGE>

Security Ownership of Management

The table set forth below contains certain information, as of
September 30, 1997, regarding beneficial ownership of equity securities of
Biozhem by each of the Directors and Executive Officers and by all of the
Directors and Executive Officers as a group:

Number of
Shares Approx.
Name of Title Beneficially Percent
Beneficial Owner of Class Owned (a) of Class
- --------------- -------- ------------ --------
<S> <C> <C> <C>
John C. Riemann, Director/CEO Common 716,581 12.1%
c/o Biozhem Cosmeceuticals Inc.
32240 Paseo Adelanto, Ste. A
San Juan Capistrano, CA 92675

Warren L. Hernand, Director Common 272,083 5.5%
33 Baypoint Village Dr.
San Rafael, CA 94901

Stan R. Wylie, Director Common 114,539 1.9%
15306 Quiet Creek.
Houston, TX 77095

Paul A. Reyff Sr. , Director Common 331,271 (b) 5.6%
36 Cove Court
Napa, CA 94559

Alan Goldsberry, Director Common 39,843 .07%
3245 Able Court
Murrietta, GA 30062

Directors, and Common 1,474,317 24.9%
Executive Officers as a Group (5 persons)
</TABLE>

(a) Unless otherwise indicated, all securities in the table are owned
beneficially and of record by the persons indicated, who possess sole
voting and investment powers as to such securities, subject to community
property laws where applicable. The data concerning beneficial ownership
is based upon information furnished by the persons named above and
contained in Biozhem's records.

(b) Includes 17,000 shares held by New England Investment Co., Inc.

Stock Transactions Involving Management

None of the directors was, during the past year, a party to any
contract, arrangement or understanding with any person with respect to any
securities of Biozhem, including but not limited to, joint ventures, loan or
option arrangements, puts or calls, guarantees against loss or guarantees of
profit, division of losses or profits, or the giving or withholding of proxies,
other than described herein.

37
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the fiscal year ended September 30, 1997, the following
were the only transactions or series of transactions with Biozhem in which
the amount involved exceeded $60,000, and in which any of directors
Riemann, Hernand, Wylie, Reyff, and Goldsberry or members of their
immediate families, had a direct or indirect material interest (and any
proposed transactions of a similar type):

Mr. Riemann. On January 31, 1997 the Company acquired all of the assets
------------
of Biogime Franchise Services (USA), Inc. ("BFS")in the amount of $362,452
and assumed all the liabilities of BFS in the amount of $184,701. The
assets included a $175,000 promissory note executed by the Company payable
to BFS which was due on demand. Following the acquisition, this
indebtedness was canceled. As consideration for the transaction, the
Company issued 1,500,000 shares of its common stock to the shareholders of
BFS (Note3). Mr. Riemann received 327,507 shares of the Company's common
stock for his stock in BFS. Two adult children of Mr. Riemann received an
aggregate of 517,480 shares of the Company's common stock for their stock
in BFS. Mr. Riemann was awarded 200,000 shares of common stock as a bonus
for the accomplishment of specific activities.

Mr. Reyff On January 31, 1997, Mr. Reyff, a director, received 250,005
---------
shares of the Company's common stock for his stock in BFS. On January 31,
1997, an adult son of Mr. Reyff received 280,006 shares of the Company's
common stock for his stock in BFS.

Mr. Goldsberry On December 5, 1997, the Company entered into a Settlement
--------------
Agreement and Mutual Release of All Claims with the franchisee of the
Atlanta, Georgia store, closed in April 1997. In consideration, the Company
issued the franchisee a $59,855 non-interest bearing note and warrant to
purchase 17,000 shares of the Company's common stock for $.40 per share.

During the fiscal year ended September 30, 1998, there were no other
transactions or series of transactions with Biozhem in which the amount
involved exceeded $60,000, and in which any of directors Riemann, Hernand,
Wylie, Reyff, and Goldsberry or members of their immediate families, had a
direct or indirect material interest (and any proposed transactions of a
similar type).

38
<PAGE>

ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K

(a) Exhibits. The following documents required by Item 601 of
Regulation S-B are filed as exhibits to this report.

Exhibit
No. Description
--- -----------

3.1 Articles of Incorporation of Entourage International, Inc. and
amendments thereto (incorporated by reference to Exhibit No. 3.1
to Amendment No l to Registrant's Registration Statement of Form
S-18, filed January 16, 1986, File No. 2-99726-FW).

3.2 Bylaws of Entourage International, Inc. incorporated by
reference to Exhibit No. 3.2 of Registrant's Registration
Statement on Form S-18, filed August 16, 1985, File No. 2-99726-
FW.

3.3 Articles of Incorporation and amendments thereto ( incorporated
by reference to form 10-KSB for the year ended September 30,
1998 and schedule 14A filed August 18, 1998)

4.1 Specimen Common Stock Certificate of Entourage International,
Inc., incorporated by reference to Exhibit No. 4.01 of
Registrant's Annual Report on form 10-K for the year ended
September 30, 1989, File No. 1-9206.

10.1 Amended Qualified Incentive Stock Option Plan for Entourage
International, Inc. incorporated by reference to Exhibit No.
10.26 of the registrant's Annual report of Form 10-K for the
year ended September 1992, file No. 1-9206.

10.2 Amended Qualified Stock Option Plan for Entourage International,
Inc. incorporated by reference to Exhibit No. 10-26 of the
registrant's Annual report of Form 10-K for the year ended 1992,
File No. I-9206.

10.3 Amended Non-qualified Stock Option Plan for Entourage
International, Inc., incorporated by reference to Exhibit No.
10-27 of the Registrant's Annual Report on Form 10-K or the year
ended September 1992, File No. 1-9206.

10.4 License Agreement between Entourage International, Inc. and
Biogime Franchise Services (USA), Inc. dated May 2, 1994. (1)

10.5 Biogime Products Supply and Distribution Agreement between
Entourage International, Inc. and Biogime Franchise Services
(USA), Inc. dated May 2, 1994. (1)

10.6 Assignment and Assumption Agreement between Entourage
International, Inc. and Biogime Franchise Services (USA), Inc.
dated May 2, 1994. (1)

10.7 Services Agreement between Entourage International, Inc. and
Gage Research & Development Institute, Inc. dated July 12, 1994.
(1)

10.8 Settlement and Release Agreement between Entourage
International, Inc. and John Southwell dated November 1, 1994.
(1)

10.9 Asset Purchase Agreement between Entourage International, Inc.
and Diamond Falcon Corporation dated December 29, 1994. (1)

39
<PAGE>

10.10 Master Transaction Agreement incorporated by reference to form
8-K filed on January 4, 1996.

10.11 Agreement and plan of merger with shareholders of Biogime
Franchise Services USA, Inc. incorporated by reference on form
10-KSB for the year ended September 30, 1997.

10.12 1998 Stock Option Plan for Biozhem Cosmeceuticals, Inc.
incorporated by reference on form 10-KSB for the year ended
September 30, 1998, file #01-14725.

16.1 Letter on changes in certifying accountant incorporated by
reference on form 8-K/A filed on September 15, 1998 file #01-
14725

21.1 Subsidiary of Registrant (1)

27 Financial Data Schedule

(1) Previously Filed.

Copies of this document are available at no cost from Biozhem
Cosmeceuticals, Inc., 32240 Paseo Adelanto, Suite A, San Juan
Capistrano, CA 92675.

40
<PAGE>

SIGNATURES
-----------

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

BIOZHEM COSMECEUTICALS, INC.

By: /S/ John C. Riemann
-------------------
John C. Riemann, Chief Executive Officer

Date: December 29, 1998
-----------------

By: /S/ John C. Riemann
---------------------
John C. Riemann
Director
Date: December 29, 1998
-----------------

By: /S/ Paul A. Reyff Sr.
----------------------
Paul A. Reyff, Sr.
Director
Date: December 29, 1998
-----------------

By: /S/ Warren L. Hernand
---------------------
Warren L. Hernand
Director
Date: December 29, 1998
-----------------

By: /S/ Alan Goldsberry
--------------------
Alan Goldsberry
Director
Date: December 29, 1998
-----------------

By: /S/ Stan W. Wylie
------------------
Stan W. Wylie
Director
Date: December 29, 1998
-----------------

<PAGE>

<ARTICLE> 5

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