<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
Form 10 - QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission file number 1 - 9206
--------
ENTOURGE INTERNATIONAL, INC.
(name of Small Business Issuer in its charter)
Texas 76 - 0118305
- ----- ------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
32240 Paseo Adelanto, Ste. A
San Juan Capistrano, California 92675
- ------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (714) 488-2184
--------------
Securities registered pursuant to section 12(b) of act: None
Securities registered pursuant to section 12(g) of act: None
Common stock $.001 par value.
Check whether the issuer (1) filed all reports required to be filed by
section 13 of 15 (d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
-- ----
As of July 31, 1998, there were 24,726,407 shares outstanding of the
issuer's common stock, $.001 par value.
1
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Condensed Financial Statements
---------------------------------------
Page
------
Condensed Balance Sheets
June 30, 1998 and September 30, 1997 3
Condensed Statements of Operation
For the Three Months Ended and the Nine
Months Ended June 30, 1998
and June 30, 1997 4 - 5
Condensed Statements of Cash Flows
For the Nine Months Ended June 30, 1998
and June 30, 1997 6
Notes to Condensed Financial Statements 7 - 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 11
2
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 Sept 30
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Trade accounts receivable, net $ 51,132 $ 9,377
Inventory 95,747 77,302
Other current assets 10,703 2,122
----------- -----------
Total current assets 157,582 88,801
Property and equipment, net 64,919 77,493
Intangible assets, net 319,692 277,725
Other assets 26,500 26,110
----------- -----------
Total Assets $ 568,693 $ 470,129
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable and accrued liabilities 162,990 112,795
Notes payable 4,846 86,609
Current portion of long-term debt 104,718 25,315
----------- -----------
Total current liabilities 272,554 224,719
Long term portion 240,983 99,337
Stockholders' Equity
Common Stock, $.001 par value. Authorized 25,000,000
shares; issued and outstanding 24,726,407 shares at
June 1998 and 22,893,074 at September 1997 24,726 22,893
Additional paid-in capital 3,900,758 3,797,592
Accumulated deficit (3,870,328) (3,674,412)
----------- -----------
Total stockholders' equity 55,156 146,073
----------- -----------
Total Liabilities and Stockholders' Equity $ 568,693 $ 470,129
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three Three
Months Months
Ended Ended
June 30 June 30
1998 1997
--------- ---------
Net Sales $283,602 $311,811
Cost of Sales 54,068 53,445
-------- --------
Gross Margin 229,534 258,366
-------- --------
Expenses
Selling and G&A 286,013 246,329
Advertising 12,196 (10,579)
Depreciation and amortization 17,689 8,663
-------- --------
Total expenses 315,898 244,413
Operating income (loss) (86,364) 13,953
Interest expense 5,691 2,434
Other income (expense) 0 1,463
-------- --------
Net income (loss) (92,055) 12,982
======== ========
Net income (loss) per common share $ (.004) $ .002
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
Nine Nine
Months Months
Ended Ended
June 30 June 30
1998 1997
----------- ---------
Net Sales $ 899,584 $855,179
Cost of Sales 171,966 158,805
--------- --------
Gross margin 727,618 696,374
--------- --------
Expenses
Selling and G&A 804,240 667,139
Advertising 50,511 20,619
Depreciation and amortization 51,501 17,168
--------- --------
Total expenses 906,252 704,926
Operating income (loss) (178,634) (8,552)
Interest expense 17,294 (6,376)
Other income 14 6,957
--------- --------
Net income (loss) $(195,914) $ 4,781
========= ========
Net income (loss) per common share $(.008) $.001
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Nine Nine
Months Months
Ended Ended
June 30 June 30
1998 1997
----------- -----------
Net cash provided by (used in) operating
activities $(165,670) $(205,010)
Net cash provided by (used in) investing
activities (78,613) (262,992)
Net cash provided by (used in) financing
activities 244,283 486,115
--------- ---------
Net increase (decrease) in cash 0 18,113
Cash at beginning of period 0 0
--------- ---------
Cash at end of period 0 18,113
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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 of 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 from time to time in the Company's filings with
the Securities and Exchange Commission.
INTERIM FINANCIAL STATEMENTS. The accompanying condensed financial statements
- -----------------------------
have been prepared in accordance with instructions to quarterly reports on form
10-QSB. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and changes in cash flows at June 30, 1998 and
for all periods presented have been made. Certain information and foot note
data necessary for fair presentation of financial position and results of
operations in conformity with generally accepted accounting principles have been
condensed or omitted. It is therefore suggested that these statements be read
in conjunction with the summary of significant accounting policies and notes to
financial statements included in the Company's annual Form 10-KSB. The results
of operations for periods ended June 30, 1998 are not necessarily indicative of
operating results for the full year.
INVENTORY NOTE AGREEMENT. The Company negotiated an inventory note arrangement
- -------------------------
with Arizona Natural Resources (ANR), its primary supplier, to provide the
Company inventory financing in the form of a line credit of $44,000 on invoiced
amounts to the Company. The line of credit bears an interest rate of 10% per
annum. The amount of one sixth (1/6) of the principal balance outstanding on the
line of credit, plus any accrued interest thereon, shall be due and payable
commencing January 15, 1998, and continuing on the 15th day of each successive
month until the line of credit has been fully paid. The amount outstanding on
the line of credit was $21,961 as of June 30, 1998.
SETTLEMENT AGREEMENT. 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 85,000 shares of the Company's common stock for $.08 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 amount outstanding was $47,884 as of June 30, 1998.
7
<PAGE>
ENTOURAGE INTERNATIONAL, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------
The restructuring begun by the Company in December 1995 has had a positive
effect, but the Company continues to suffer from liquidity shortages and less
than acceptable sales levels. The restructuring program includes reducing G&A
expense levels, refocusing and redirecting management resources toward corporate
retail Biozhem Skin Care center profitability improvement, development of an
expanded line of skin care products under the brand name Biozhem and an
aggressive advertising campaign to increase the Company's customer base. In
addition, a new women's color product line was introduced in April 1997 under
the name of Colour Concepts which has opened a new area of potential sales.
The aggressive advertising campaign is to be in the form of a new
"infomercial". A new "infomercial" featuring a new treatment line of skin care
products currently under development and should be ready for a late fall media
launch. Funding delays have slowed the production and have resulted in lower
sales than had been anticipated for current fiscal year. The Company's
experience with "infomercials" indicates that this form of advertising, on a
national basis, should increase sales, expand the Company's existing customer
base and help the overall liquidity of the Company.
However in spite of the restructuring, the Company continues to experience
liquidity shortages as a result of less than acceptable sales levels. The
Company has made progress in reducing the gap between current assets and current
liabilities with current liabilities in excess of current assets of $114,972 as
of June 30, 1998 compared with current liabilities in excess of current assets
of $135,918 as of September 30, 1997 and $186,703 as of March 31, 1998. The net
loss of $195,914 for the nine months ended June 30, 1998 decreased the working
capital position as of June 30, 1998.
Cash remained at $0 as of March 31, 1998 and June 30, 1998.
Accounts payable and accrued liabilities increased from $112,795 as of
September 30, 1997 to $162,998 as of June 30, 1998 primarily as a result of
increased inventory levels in anticipation of the new "infomercial" and other
assets.
The Company, as of September 1, 1997, acquired a $50,000 operating line of
credit. However, the Company must rely on cash management and profitability
during fiscal year 1998 in order to sustain its operations. Subsequent to year
end, the Company has completed additional equity financings and is actively
pursuing additional financing sources. Although management believes the Company
will improve its profitability, if management can not achieve its 1998 operating
plan because of sales shortfalls or other unfavorable events and if liquidity
shortages continue, the Company may find it necessary to further reduce
expenses, seek additional funds from outside the Company, or undertake other
actions as may be appropriate.
8
<PAGE>
RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 1998
---------------------------------------------------
COMPARED WITH QUARTER ENDED JUNE 30, 1997
-----------------------------------------
The net loss for the continuing operations for the quarter ended June 30, 1998
was $92,055 ($.004 per share), compared with a net profit of $12,982 ($.002 per
share) for the quarter ended June 30, 1997. The net profit for the quarter ended
June 30, 1997 resulted from expense adjustments after final reconciliation of
the 1995 accounts payable in the amount of $34,096. In addition, accrued
interest for the BFS note was forgiven and canceled in the amount of $12,000.
Funding delays have delayed the production of a new "infomercial" featuring a
new treatment line and have resulted in lower sales than had been anticipated
for the current fiscal year. The Company's experience with "infomercials"
indicates that this form of advertising, on a national basis, should increase
sales, expand the Company's existing customer base and help the overall
liquidity of the Company.
Net sales for the continuing operations for the quarter ended June 30, 1998
were $283,602 compared with net sales of $311,811 for the quarter ended June 30,
1997. The decrease in net sales was primarily because of reduced volumes as a
result of reduced sales at the franchise division. One franchise location closed
in May 1997 and two more were acquired in by the Company in the BFS acquisition
transaction in February 1997 and two more franchises were acquired in July 1997
all of which are now part of the Company's retail division. During the quarters
ended June 30, 1998 and 1997 respectively, net sales increased in the retail
division by about $2,000 (1%). Sales volume in the franchise division declined
by about $30,000 or 29% during the quarter ended June 30, 1998 compared with the
quarter ended June 30, 1997 due to the closure of one franchise location and
the acquisition of the four franchise locations by the Company's retail
division.
Gross margin was 81% for the quarter ended June 30, 1998 and 83% for the
quarter ended June 30, 1997. The decreased gross margin percentage resulted
primarily from the introduction of promotional sales events each month which
offered different volume discounts.
Operating expenses for the quarter ended June 30, 1998 were about $316,000
compared with about $244,500 for the quarter ended June 30, 1997 primarily as a
result of increased advertising by approximately $23,000 and additional expenses
associated with the acquisition of two franchise locations by the retail
division in July 1997. Overall, the Company believes that current operating
expenses are at a minimum level to allow the Company to improve its sales volume
during fiscal year 1998.
The Company increased its advertising expenditures during the quarter ended
June 30, 1998 to about $12,200 from about $(10,600) in the quarter ending June
30, 1997, and about $9,600 in the quarter ended March 31, 1998. The advertising
expense in the financial section (see page 4) shows a credit for the quarter
ended June 30, 1997 in the amount of $10,579. Final reconciliation of the 1995
accounts payable resulted in a credit adjustment to advertising expense in the
amount of $17,620. The Company has focused its advertising on special mailings
to the Company's existing customer base on a monthly basis. A new "infomercial"
is under production and should be ready for a fall media launch.
Selling, general and administrative expenses showed a net increase of about
$40,000 for the quarter ended June 30, 1998 compared with the quarter ended June
30, 1997 primarily as a result of the addition of two retail locations.
9
<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED JUNE 30, 1998
-------------------------------------------------------
COMPARED WITH NINE MONTHS ENDED JUNE 30, 1997
---------------------------------------------
The net loss for the continuing operations for the nine month period ended
June 30, 1998 was $195,914 ($.008 per share) compared with a net profit of
$4,908 ($.001 per share) for the nine month period ended June 30, 1997. The net
profit for the period ended June 30, 1997 was primarily due as a result of a
final reconciliation of 1995 accounts payable and a resulting expense adjustment
of $34,096 and the cancellation of the accrued interest on the BFS note payable
in the amount of $12,000. Funding delays have slowed the production of a new
"infomercial" featuring a new treatment line and has resulted in lower sales
than had been anticipated for current fiscal year. The Company's experience with
"infomercials" indicates that this form of advertising, on a national basis,
should increase sales, expand the Company's existing customer base and ad to the
overall profitability of the Company.
Net sales for the nine month period ended June 30, 1998 were $899,584 compared
with net sales of $855,179 for the period ended June 30, 1997. The increase in
net sales was generally because of increased volumes in the retail division of
about $144,000 and a decrease of about $100,000 in the franchise division. Both
resulted from the acquisitions of franchise stores by the retail division in
February and July 1997 and the closure of one franchise location in April 1997.
Gross margin remained constant at 81% for the nine month period ended June
30, 1998 and 81% for the nine month period ended June 30, 1997. The gross margin
in the quarter ended June 30, 1998 was 81% as well.
Operating expenses for the nine months ended June 30, 1998 were about $906,000
compared with about $704,800 for the nine months ended June 30, 1997 generally
due to the addition of two stores in February 1997 and two stores in July 1997.
The nine months ended June 30, 1998 included approximately $322,500 in operating
expenses for these four stores as compared to approximately $108,000 for these
same stores in the nine months ended June 30, 1997. The quarter ended June 30,
1997 included an expense adjustment of $34,096 after the reconcilement of the
1995 accounts payable. In addition, interest on the note to Biogime Franchise
Services, Inc. ("BFS") was forgiven and canceled in the amount of $12,000.
The Company increased its advertising expenditures during the nine months
ended June 30, 1998 compared with the nine months ended June 30, 1997 from about
$21,000 to about $50,500, primarily as a result of focusing its advertising
format to direct mailings until the new "infomercial" is completed. Advertising
as a percentage of net sales was 6% for the nine months ended June 30, 1998
compared to 3% for the six months ended June 30, 1997.
Selling, general and administrative expenses showed a net increase of about
$137,000 for the nine month period ended June 30, 1998 compared to the nine
months ended June 30, 1997 generally due to the addition of two stores in
February 1997 and two stores in July 1997. The nine months ended June 30, 1998
included approximately $283,600 in selling and general administration expenses
for these four stores as compared to approximately $96,000 for the nine months
ended June 30, 1997.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There are no significant changes to the information reported in the
Form 10-KSB for the year ended September 30, 1997
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENTOURAGE INTERNATIONAL, INC.
-----------------------------
(registrant)
Date: August 11, 1998 By: /s/ John C. Riemann
-------------------------
John C. Riemann
Chief Executive Officer
(Responsible Financial Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 51,132
<ALLOWANCES> 0
<INVENTORY> 95,747
<CURRENT-ASSETS> 157,582
<PP&E> 232,518
<DEPRECIATION> 167,599
<TOTAL-ASSETS> 568,693
<CURRENT-LIABILITIES> 272,554
<BONDS> 0
0
0
<COMMON> 24,726
<OTHER-SE> 55,156
<TOTAL-LIABILITY-AND-EQUITY> 568,693
<SALES> 899,584
<TOTAL-REVENUES> 899,598
<CGS> 171,966
<TOTAL-COSTS> 976,206
<OTHER-EXPENSES> 102,012
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,294
<INCOME-PRETAX> (195,914)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (195,914)
<EPS-PRIMARY> (.008)
<EPS-DILUTED> 0
</TABLE>
