<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, 1999
Commission file number 1 - 14725
---------
BIOZHEM COSMECEUTICALS, INC.
(name of Small Business Issuer in its charter)
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, California 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 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, 1999, there were 7,232,630 shares outstanding of the
issuer's common stock, $.001 par value.
1
<PAGE>
BIOZHEM COSMCEUTICALS, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Condensed Financial Statements
---------------------------------------
Page
----
Condensed Balance Sheets
June 30, 1999 and September 30, 1998 3
Condensed Statements of Operation
For the Three Months Ended and the Nine
Months Ended June 30, 1999
and June 30, 1998 4 - 5
Condensed Statements of Cash Flows
For the Nine Months Ended June 30, 1999
and June 30, 1998 6
Notes to Condensed Financial Statements 7 - 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
2
<PAGE>
BIOZHEM COSMECEUTICALS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30 Sept 30
1999 1998
------------- -------------
<S> <C> <C>
Cash $ 3,295 $ -
Trade accounts receivable, net 2,288 3,002
Inventory 72,952 90,322
Other current assets 6,934 5,238
------------- -------------
Total current assets 85,469 98,562
Property and equipment, net 53,372 62,140
Intangible assets, net 330,464 288,598
Other assets 17,755 72,001
------------- -------------
Total Assets $ 487,060 $ 521,301
============= =============
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable and accrued liabilities 225,971 212,919
Notes payable 59,354 118,069
Current portion of long-term debt 66,910 46,935
------------- -------------
Total current liabilities 352,235 377,923
Long term portion 145,625 93,835
Stockholders' Equity:
Preferred stock, $1.00 par value:
Authorized shares - 10,000,000
issued and outstanding - none
Common stock, $.001 par value.
Authorized 100,000,000 shares; issued and
outstanding 4,945,282 and 6,951,200
at September 1998 and March 1999, respectively 7,232 4,945
Common stock subscribed, $.001 par value
980,414 at September 1998 980
Additional paid-in capital 4,644,056 4,252,412
Accumulated deficit (4,662,088) (4,208,794)
------------- -------------
Total stockholders' equity (10,800) 49,543
------------- -------------
Total Liabilities and Stockholders' Equity $ 487,060 $ 521,301
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
BIOZHEM COSMECEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
June 30 June 30
1999 1998
------------- -------------
<S> <C> <C>
Net Sales $ 263,562 $ 283,602
Cost of Sales 57,523 54,068
------------- -------------
Gross Margin 206,039 229,534
------------- -------------
Expenses
Selling and G&A 394,573 286,013
Advertising 14,195 12,196
Depreciation and amortization 19,689 17,689
------------- -------------
Total expenses 428,457 315,898
Operating income (loss) (222,418) (86,364)
Interest expense 7,194 5,691
Other income (expense) 4,445 0
------------- -------------
Net income (loss) (225,167) (92,055)
============= =============
Net income (loss) per common share $ (.037) $ (.004)
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
BIOZHEM COEMECEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Nine
Months Months
Ended Ended
June 30 June 30
1999 1998
------------- -------------
<S> <C> <C>
Net Sales $ 824,506 $ 899,584
Cost of Sales 169,735 171,966
------------- -------------
Gross margin 654,771 727,618
------------- -------------
Expenses
Selling and G&A 979,052 804,240
Advertising 54,719 50,511
Depreciation and amortization 56,329 51,501
------------- -------------
Total expenses 1,090,100 906,252
Operating income (loss) (435,329) (178,634)
Interest expense 22,409 17,294
Other income 4,445 14
------------- -------------
Net income (loss) $ (453,293) $ (195,914)
============= =============
Net income (loss) per common share $ (.07) $ (.008)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
BIOZHEM COSMECEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Nine
Months Months
Ended Ended
June 30 June 30
1999 1998
------------- -------------
<S> <C> <C>
Net cash provided by (used in) operating
activities $ (333,279) $ (165,670)
Net cash provided by (used in) investing
activities (69,426) (78,613)
Net cash provided by (used in) financing
activities 406,000 244,283
------------- -------------
Net increase (decrease) in cash 3,295 0
Cash at beginning of period 0 0
------------- -------------
Cash at end of period 3,295 0
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
BIOZHEM COSMECEUTICALS, 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, 1999 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, 1999 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 outstanding on the line of credit was $0 as of June 30, 1999.
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 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.
SETTLEMENT AGREEMENT On January 15, 1999, the Company entered into a Mutual
Release and Settlement Agreement by and between Warren Hernand, a director, and
IAMCO Corporation, on the one hand, and the Company, on the other hand. In
consideration, the Company agreed to pay $36,000 to Hernand in the following
manner: an initial payment of $12,000 on or before February 1, 1999; a second
payment of $12,000 on or before May 1, 1999; and a third payment of $12,000 on
or before July 15, 1999.
7
<PAGE>
BIOZHEM COSMECEUTICALS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has experienced severe liquidity shortages beginning in August 1994.
Principal contributing factors to the deterioration of the Company's liquidity
and capital position have been; lower than anticipated retail sales and
profitability due to limited marketing and the need for a new infomercial. The
Company had current liabilities in excess of current assets of $266,766 as of
June 30, 1999, compared with current liabilities in excess of current assets of
$279,361 as of September 30, 1998.
The Company decreased inventory levels from $90,300 as of September 30, 1998 to
approximately $72,950 during the nine months ended June 30, 1999.
Accounts payable and accrued liabilities have been increased from approximately
$213,000 as of September 30, 1998 to approximately $226,000 as of June 30, 1999.
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 balance as of June 30, 1999
was $0. The Company must still rely primarily on operating cash flow and cash
management to sustain its operations. During the nine months ended June 30,
1999, the Company has completed additional equity financing of $392,950 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. (see "Subsequent
Events", page 10)
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 its ability to obtain additional financing. There can be no
assurances that the Company will be successful in these regards. See "Safe
Harbor Statement under the Private Securities Litigation Reform Act of 1995."
RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 1999
---------------------------------------------------
COMPARED WITH QUARTER ENDED JUNE 30, 1998
-----------------------------------------
The net loss for the continuing operations for the quarter ended June 30, 1999
was $225,167 ($.037 per share), compared with a net loss of $92,055 ($.004 per
share) for the quarter ended June 30, 1998.
Net sales for the continuing operations for the quarter ended June 30, 1999 were
$263,562 compared with net sales of $283,602 for the quarter ended June 30,
1998. During the quarters ended June 30, 1999 and 1998 respectively, net sales
decreased in the retail division by about $13,000. Sales volume in the franchise
division declined by about $7,000 during the quarter ended June 30, 1999 due to
the closure of one franchise location in 1998.
8
<PAGE>
Gross margin was 78% for the quarter ended June 30, 1999 and 81% for the quarter
ended June 30, 1998. The decreased gross margin percentage resulted primarily
from the introduction of promotional sales events each month, which offered
different volume discounts and the writing off of obsolete inventory of
approximately $7,800.
Operating expenses for the quarter ended June 30, 1999 were about $428,000
compared with about $316,000 for the quarter ended June 30, 1998 primarily as a
result of video development of $47,500, consulting fees of approximately $10,000
and Directors' fees of approximately $12,000. 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 1999.
RESULTS OF OPERATIONS - NINE MONTHS ENDED JUNE 30, 1999
-------------------------------------------------------
COMPARED WITH NINE MONTHS ENDED JUNE 30, 1998
---------------------------------------------
The net loss for the continuing operations for the nine month period ended June
30, 1999 was $453,293 ($.07 per share) compared with a net loss of $195,914
($.008 per share) for the nine month period ended June 30, 1998. Funding delays
have hampered the Company's ability to implement an effective new business
promotional program, which has resulted in lower sales than had been anticipated
for current fiscal year. The Company's experience with "infomercials" and other
forms of direct response advertising indicates that this form of advertising, on
a national basis, should increase sales, expand the Company's existing customer
base and add to the overall profitability of the Company.
Net sales for the nine month period ended June 30, 1999 were $824,506 compared
with net sales of $899,584 for the period ended June 30, 1998. The decrease in
net sales was primarily due to the decreased sales volume of approximately
$32,000 as a result of one former franchise location being acquired by the
Company in January 1999 and the need for new promotional programs. (see
subsequent events page 10)
Gross margin for the nine months ended June 30, 1999 was 79% compared to 81% for
the nine months ended June 30, 1998. The decreased gross margin percentage
resulted primarily from the introduction of promotional sales events each month,
which offered different volume discounts and the writing off of obsolete
inventory of approximately $7,800.
Operating expenses for the nine months ended June 30, 1999 were approximately
$1,090,000 compared with approximately $906,000 for the nine months ended June
30, 1998. Advertising was increased $4,200 over the nine-month period. Bad debt
expense increased by approximately $19,500 for the nine months ended June 30,
1999, compared to nine months ended June 30, 1998 due to an expense reversal in
the nine months ended June 30, 1998. Legal expense increased approximately
$19,250 for the nine months ended June 30,1999 when compared to the nine months
ended June 30, 1998 due to fund raising activities. $47,500 was spent on video
development during the nine months ended June 30, 1999, as well as consulting
fees for approximately $10,000 and Directors' fees of approximately $12,000.
9
<PAGE>
SUBSEQUENT EVENTS
MANAGEMENT AGREEMENT
This Agreement (the "Agreement") is effective as of July 14, 1999 (the
"Effective Date") by and among ONE WORLD NETWORKS INTEGRATED TECHNOLOGIES, INC.,
a Nevada corporation (or any affiliate thereof) (collectively "OWN"), and
BIOZHEM COSMECEUTICALS, INC. ("COMPANY") a Texas corporation.
GENERAL MANAGEMENT OWN is hereby engaged by the Company to exclusively provide
and perform for and on behalf of the Company all management services reasonably
necessary for the proper and efficient operation of the Company and the Business
during the Term of this Agreement. "Term" shall mean, subject to certain
provisions, a period beginning as of the Closing Date and terminating five (5)
years hence. OWN is exclusively authorized to provide and perform for and on
behalf of the Company all services required of OWN pursuant to the terms of this
Agreement in such a manner as OWN deems reasonable and appropriate in order to
meet the day-today requirements of the Company and the Business. In performing
such services for the Company, OWN may advance or pay on the Company's behalf
all necessary or appropriate sums pursuant to this Agreement, including but not
limited to Manager's Reimbursement and Management Fee. OWN may subcontract with
other persons to perform any part of the services required of OWN hereunder. The
Company acknowledges the OWN shall only be required to spend the hours necessary
or appropriate to perform its duties hereunder and shall not be prohibited
hereby from undertaking other activities, duties of the Board of Directors and
officers on the Company, the Company will cooperate with OWN's business
arrangements and will not interfere with OWN's efficient management of the
day-to-day operations of the Company.
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, 1998
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.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
None
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.
BIOZHEM COSMECEUTICALS, INC.
----------------------------
(registrant)
Date: August 11, 1999 By: /s/ John C. Riemann
---------------------------
John C. Riemann
Chief Executive Officer
(Responsible Financial Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 3,295
<SECURITIES> 0
<RECEIVABLES> 2,288
<ALLOWANCES> 0
<INVENTORY> 72,952
<CURRENT-ASSETS> 85,469
<PP&E> 244,695
<DEPRECIATION> 191,323
<TOTAL-ASSETS> 487,060
<CURRENT-LIABILITIES> 352,235
<BONDS> 0
0
0
<COMMON> 7,232
<OTHER-SE> (10,800)
<TOTAL-LIABILITY-AND-EQUITY> 487,060
<SALES> 824,506
<TOTAL-REVENUES> 828,951
<CGS> 169,735
<TOTAL-COSTS> 1,148,787
<OTHER-EXPENSES> 111,048
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,409
<INCOME-PRETAX> (453,293)
<INCOME-TAX> 0
<INCOME-CONTINUING> (453,293)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (453,293)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
