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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 December 31, 1998
Commission file number 1-14725
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BIOZHEM COSMECEUTICALS, INC.
(Name of Small Business Issuer in its charter)
Texas 76-0118305
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
32240 Paseo Adelanto
Suite 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 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 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 February 5, 1999, there were 6,221,807 shares outstanding of the
issuer's common stock, $.001 par value.
1
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BIOZHEM COSMECEUTICALS, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Condensed Financial Statements
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Page
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Condensed Balance Sheets
December 31, 1998 and September 30, 1998 3
Condensed Statements of Operations
For the Three Months Ended December 31, 1998
and December 31, 1997 4
Condensed Statements of Cash Flows
For the Three Months Ended December 31, 1998
and December 31, 1997 5
Notes to be Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II - OTHER INFORMATION 8
2
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<TABLE>
BIOZHEM COSMECEUTICALS, INC.
CONDENSED BALANCE SHEETS
ASSETS
<CAPTION>
December 31 September 30
1998 1998
---- ----
<S> <C> <C>
Current Assets:
Cash $ - $ -
Trade accounts receivable, net 4,129 3,022
Inventory 92,582 90,322
Other current assets 6,665 5,238
------------ ------------
Total current assets 103,376 98,562
Property and equipment, net 57,986 62,140
Intangible assets, net 277,760 288,598
Other assets 76,149 72,001
------------ ------------
Total Assets 515,271 521,301
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 231,761 $ 212,919
Notes payable 54,346 118,069
Current portion of long-term debt 98,817 46,935
------------ ------------
384,924 377,923
============ ============
Long-term debt 148,582 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 6,082,918
at September 1998 and December 1998,
respectively 6,083 4,945
Common stock subscribed, $.001 par value
980,414 at September 1998 980
Additional paid-in capital 4,291,956 4,252,412
Accumulated deficit (4,316,274) (4,208,794)
------------ ------------
Total stockholders' equity (18,235) 49,543
------------ ------------
Total Liabilities and Stockholders' Equity $ 515,271 $ 521,301
============ ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
3
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BIOZHEM COSMECEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three Three
Months Months
Ended Ended
December 31 December 31
1998 1997
---- ----
Net sales $ 271,265 $ 308,247
Cost of sales 51,460 53,723
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Gross margin 219,805 254,524
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Expenses:
Selling and G & A 290,646 234,206
Advertising 13,027 28,705
Depreciation and amortization 16,830 15,921
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Total expenses 320,503 278,832
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Operating loss (100,698) (24,308)
Interest expense (6,780) (4,209)
Other income (expense) - 9
---------- ----------
Loss from operations (107,478) (28,508)
Income tax expense - -
Net loss (107,478) (28,508)
========== ==========
Net loss per common share (.02) (.01)
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
4
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BIOZHEM COSMECEUTICALS, INC.
CONDENSED STATEMENT OF CASH FLOWS
Three Three
Months Months
Ended Ended
December 31 December 31
1998 1997
---- ----
Net cash provided by (used in)
operating activities $ (80,769) $ (11,072)
Net cash provided by (used in)
investing activities (1,837) (77,705)
Net cash provided by (used in)
financing activities 82,606 88,777
---------- ----------
Net increase (decrease) in cash - -
Cash at beginning of period - -
Cash at end of period $ - $ -
========== ==========
5
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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 financial statements have been
prepared in accordance with the instructions to quarterly reports on Form
10-QSB. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and changes in cash flows at December 31, 1998 and for all
periods presented have been made. Certain information and footnote data
necessary for fair presentation of financial position and results of operations
in conformity with generally accepted accounting principals 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/A. The results
of operations for the period ended December 31, 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 outstanding on the line of credit was $0 as of December 31,
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 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.
6
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BIOZHEM COSMECEUTICALS, INC.
MANAGEMENT DISCUSSIONS 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; lack of growth in direct sales, 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 $281,548 as of December 31, 1998, compared with current liabilities in
excess of current assets of $279,361 as of September 30, 1998.
The Company increased inventory levels slightly from $90,300 to approximately
$92,500 during the quarter ended December 31, 1998.
Accounts payable and accrued liabilities have been increased from approximately
$213,000 as of September 30, 1998 to $232,000 as of December 31, 1998, primarily
due to accruals for 1998 audit fees and a new catalog.
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.
During the three months ended December 31, 1998 the Company has completed
additional equity financing of $39,700 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'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 DECEMBER 31, 1998 COMPARED WITH QUARTER
ENDED DECEMBER 31, 1997.
The net loss for the quarter ended December 31, 1998, was $107,478 ($.02 per
share), compared to the net loss of $28,508 ($.01 per share).
Net sales, for operations, for the quarter ended December 31, 1998 were $271,265
compared with net sales of $308,247 for the quarter ended December 31, 1997. The
decrease in net sales was primarily due to decreased advertising in the form of
television infomercials, which were not run in the three months ended December
1998. A new infomercial is currently in production and should be ready to air by
late spring of 1999.
Gross margin was 81% for the quarter ended December 31, 1998 and 82.5% for the
quarter ended December 31, 1997. The decrease was due primarily to additional
promotional discounts offered at the retail level during the three months ended
December 31, 1998.
7
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BIOZHEM COSMECEUTICALS, INC.
MANAGEMENT DISCUSSIONS AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating expenses for the quarter ended December 31, 1998 increased by
approximately $42,000 to $321,000 compared with about $279,000 for the quarter
ended December 31, 1997. Of the $42,000 increase, $21,000 was as a result of a
non-cash adjusting entry from the year ended September 1997 crediting bad debt
expense in the three months ended December 1997. Additional increases related to
the Company's capital raising efforts include legal expense increases of
approximately $7,700 to $11,200 for the three months ended December 1998
compared to $3,500 for the three months ended December 1997 and public company
fees increases of approximately $2,700 to $5,700 for the three months ended
December 1998 compared to $3,000 for the three months ended December 1997.
Travel and lodging expenses increased by approximately $4,600 to $4,700 for the
three months ended December 1998 compared to $100 for the three months ended
December 1997 due to onsite contacts made to the Company's retail locations in
conjunction with the Company's long range plans to increase sales. The sales
trends showed improvement during the last part of the first quarter ended
December 1998 and have continued into the second quarter. 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There are no significant changes to the information reported
in the Form 10-KSB/A 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.
Item 6. Exhibits and Reports on Form S-8
--------------------------------
( a ) Exhibits
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Exhibit 27 - Financial Data Schedule
( b ) Reports on Form S-8
-------------------
Stock registration statement for Consulting Agreement
with International Media Solutions, Inc. January 7,
1999
8
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SIGNATURES
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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 COSMECEUITCALS, INC.
----------------------------
(registrant)
Date: February 09, 1999 By: /s/ John C. Riemann
--------------------
John C. Riemann
Chief Executive Officer
(Responsible Financial Officer)
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<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
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