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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 MARCH 31, 2000
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)
32238 Paseo Adelanto, Suite A
San Juan Capistrano, CA 92675
- ----------------------- -----
(Address of Principal executive offices) (Zip Code)
Issuer's telephone number, including area code (949) 448-2184
--------------
Securities registered pursuant to section 12(b) of act: None
Securities registered pursuant to section 12(g) of act: None
Common stock $.001 par value.
Check whether the issuer (1) filed all reports required to be filed by
Section 13 of 15 (d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
As of April 30, 2000, there were 8,231,435 shares outstanding of the
issuer's common stock, $.001 par value.
1
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BIOZHEM COSMECEUTICALS, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Condensed Financial Statements
---------------------------------------
Page
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Condensed Balance Sheets
March 31, 2000 (unaudited) and September 30, 1999 3
Condensed Statements of Operations (unaudited)
For the Three Months Ended March 31, 2000
and March 31, 1999 4
Condensed Statements of Operations (unaudited)
For the Six Months Ended March 31, 2000
and March 31, 1999 5
Condensed Statements of Cash Flows (unaudited)
For the Six Months Ended March 31, 2000
and March 31, 1999 6
Notes to Condensed Financial Statements (unaudited) 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II - OTHER INFORMATION 11
2
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BIOZHEM COSMECEUTICALS, INC.
CONDENSED BALANCE SHEETS
ASSETS
March 31 September 30
2000 1999
------------ ------------
Current Assets: (unaudited)
Cash $ 8,096 $ -
Trade accounts receivable, net 4,382 1,347
Inventory 52,915 59,862
Other current assets 5,039 3,268
------------ ------------
Total current assets 70,432 64,477
Property and equipment, net 36,549 47,758
Intangible assets, net 290,479 316,441
Other assets 22,195 23,350
------------ ------------
Total Assets $ 419,655 $ 452,026
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued liabilities $ 270,968 $ 201,396
Notes payable 268,816 59,355
Current portion of long-term debt 36,599 69,675
------------ ------------
576,383 330,426
Long-term debt, less current portion 40,321 30,811
------------ ------------
Total liabilities 616,704 361,237
------------ ------------
Stockholders' Equity (Deficit)
Preferred stock, $1.00 par value; 10,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, $.001 par value; 100,000,000 shares
authorized; 8,181,389 and 7,985,548 shares
issued and outstanding at March 31, 2000 and
September 1999 respectively 8,181 7,985
Common stock subscribed, $.001 par value
50,046 and 118,046 at March 2000 and
September 1999 respectively 50 118
Additional paid-in capital 5,406,453 5,340,081
Accumulated deficit (5,611,733) (5,257,395)
------------ ------------
Total stockholders' equity (deficit) (197,049) 90,789
------------ ------------
Total Liabilities and Stockholders' Equity $ 419,655 $ 452,026
============ ============
The accompanying notes are an integral part
of the condensed financial statements
3
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BIOZHEM COSMECEUITCALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three Three
Months Months
Ended Ended
March 31 March 31
2000 1999
------------ ------------
Net Sales $ 216,964 $ 289,720
Cost of Sales 39,033 60,751
------------ ------------
Gross Margin 177,931 228,969
------------ ------------
Expenses:
Selling, general and administrative 319,788 293,829
Advertising 8,188 27,497
Depreciation and amortization 17,545 19,771
------------ ------------
Total expenses 345,521 341,097
------------ ------------
Operating income (loss) (167,590) (112,128)
Interest expense 6,250 8,435
Other income - -
Net income (loss) $ (173,840) $ (120,563)
============ ============
Net income (loss) per common share $ (.02) $ (.02)
============ ============
Weighted average number of common shares outstanding 7,697,467 6,307,321
============ ============
The accompanying notes are an integral part
of the condensed financial statements.
4
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BIOZHEM COSMECEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Six Six
Months Months
Ended Ended
March 31 March 31
2000 1999
------------ ------------
Net Sales $ 442,425 $ 560,984
Cost of Sales 77,859 112,210
------------ ------------
Gross margin 364,566 448,774
Expenses:
Selling and G&A 642,795 584,479
Advertising 33,215 40,524
Depreciation and amortization 37,172 36,638
------------ ------------
Total expenses 713,182 661,641
------------ ------------
Operating income (loss) (348,616) (212,867)
Interest expense 7,422 15,215
Other income 1,700 -
------------ ------------
Net income (loss) $ (354,338) $ (228,082)
============ ============
Net income (loss) per common share $ (.05) $ (.04)
============ ============
Weighted average number of common shares
outstanding 7,697,467 6,307,321
============ ============
The accompanying notes are an integral part
of the condensed financial statements.
5
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BIOZHEM COSMECEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Six Six
Months Months
Ended Ended
March 31 March 31
2000 1999
------------ ------------
Net cash (used in) operating activities $ (242,514) $ (248,546)
Net cash (used in) investing activities - (64,708)
Net cash provided by financing activities 250,610 372,919
------------ ------------
Net increase in cash 8,096 59,665
Cash at beginning of period - -
Cash at end of period $ 8,096 $ 59,665
============ ============
The accompanying notes are an integral part
of the condensed financial statements.
6
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BIOZHEM COSMECEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS.
- --------------------------------------
The accompanying condensed financial statements have been prepared in accordance
with the instructions to quarterly reports on Form 10-QSB. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
changes in cash flows at March 31, 2000 and for all periods presented have been
made. Certain information and foot note data necessary for fair presentation of
financial position and results of operations in conformity with generally
accepted accounting principles have been condensed or omitted. It is therefore
suggested that these statements be read in conjunction with the summary of
significant accounting policies and notes to financial statements included in
the Company's annual Form 10-KSB. The results of operations for the periods
ended March 31, 2000 are not necessarily indicative of operating results for the
full year.
NOTE 2 - ISSUANCE OF COMMON STOCK
- ---------------------------------
During the six-month period ended March 31, 2000, the Company issued shares of
stock to third parties for transactions that were recorded in the Company's
September 30, 1999 financial statements. The value of such shares was recorded
previously as shares subscribed; therefore, the issuance had no net impact on
operations or equity.
In addition, OWN exercised warrants to acquire 127,844 shares for $66,500 during
the six-month period ended March 31, 2000 (see Note 7).
NOTE 3 - STOCK OPTIONS AND WARRANTS
- -----------------------------------
In October 1999, the Company amended its Agreement with OWN (see Note 7). As
part of that amendment, the Company agreed to lower the exercise price of the
remaining 872,156 Class A Warrants from $0.52 to $0.15 per share. The repricing
of these warrants resulted in variable award accounting under FASB
Interpretation No. 44. Because of the decline in the Company's stock price since
the date of the original warrant grant, no additional expense is required for
the six-month period ended march 31, 2000 under variable award accounting.
During the six-month period ended March 31, 2000, there was no other stock
option or warrant activity.
NOTE 4 - NOTES PAYABLE
- ----------------------
On October 13, 1999, the Company entered into a $100,000 note payable with a
shareholder, bearing interest at 10%, with principal and interest due on August
1, 2000.
On November 30, 1999, the Company entered into a $100,000 note payable with a
shareholder, bearing interest at 12%, with principal and interest due on
February 29, 2000. This amount has not yet been repaid as of March 31, 2000.
Negotiations are now in process to make a partial payment and restructure the
balance of the note.
At March 31, 2000, the Company's note payable balance to OWN totaled $0 (see
Note 7).
7
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NOTE 5 - LOSS PER SHARE
- -----------------------
Net loss per share is based on the weighted average number of common shares
outstanding and dilutive common stock equivalents during the periods presented.
Options and warrants to purchase shares of common stock were excluded from the
computation of the diluted loss per share, as they would have been
anti-dilutive.
NOTE 6 - GOING CONCERN
- ----------------------
The accompanying condensed financial statements have been prepared assuming the
Company will continue as a going concern. The Company has recurring losses from
operations and limited operating revenues for the six-month period ended March
31, 2000 and negative working capital as of March 31, 2000. These factors (among
others) raise substantial doubt about the Company's ability to continue as a
going concern. The ability of the Company to operate as a going concern is
dependent upon its ability to obtain additional debt and/or equity and to
achieve its 2000 operating plan, which contemplates significantly improved
operating results and cash flow. There can be no assurances that the Company
will be successful in these regards.
The financial statements do not include any adjustments related to the
recoverability and classification of assets carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
NOTE 7 - MANAGEMENT AGREEMENT
- -----------------------------
The Company entered into a management agreement in 1999. This Agreement (the
"Agreement") was effective as of July 14, 1999 (the "Effective Date") by and
among One World Network Integrated Technologies, Inc., a Nevada corporation (or
any affiliate thereof) (collectively "OWN"), and the Company. OWN is 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 for a five-year period.
In October 1999, the Company amended the Agreement. As part of the amendment,
OWN agreed to increase its loan available to the Company to $100,000 and to
exercise 127,844 shares of its Class A Warrants for $66,500. In consideration
for these transactions, the Company agreed to lower the exercise price of the
remaining Class A Warrants to $0.15 per share (see Note 3).
Subsequent to March 31, 2000, the Company and OWN terminated the Agreement (see
Note 8).
NOTE 8 - SUBSEQUENT EVENTS
- --------------------------
On May 1, 2000, the Company terminated its Agreement with OWN (see Note 7). In
connection with the termination, OWN agreed to exercise its remaining Class A
Warrants for $175,000 and agreed to acquire co-ownership of the Company's
pre-termination customer list for a guaranteed royalty of $40,000. The
co-ownership acquisition of the pre-termination customer list will be recorded
in the quarter ended June 30, 2000.
NOTE 9 - SEGMENT REPORTING
- --------------------------
The Company is currently operating under one business segment. Thus, no
reporting is required.
8
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ITEM 2
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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has recently experienced severe liquidity shortages. Principal
contributing factors to the deterioration of the Company's liquidity and capital
position have been the following: lack of growth in direct sales, lower than
anticipated retail sales and profitability due to limited marketing, and the
need for a new infomercial. Current liabilities exceeded current assets by
$505,951 at March 31, 2000.
The Company decreased inventory levels from $87,500 to approximately $53,000
during the quarter ended March 31, 2000 due to decreased sales levels.
Accounts payable and accrued liabilities have been increased from approximately
$201,000 as of September 30, 1999 to approximately $271,000 as of March 31, 2000
due to lower than anticipated cash levels and reduced revenues.
As of September 30, 1999, upon closing of the transaction, OWN made available to
the Company a loan of up to $50,000 to cover operational cash flow problems. The
loan bears interest of 10% for a one-year period. If the note is not repaid at
maturity it may be repaid with common stock of the Company valued at $.37 per
share, with piggyback registration rights. In addition, OWN shall assist the
Company and its advisors, and on a best efforts basis and on terms to be
mutually agreed upon, in arranging for $200,000 in new equity. The balance on
the note was $42,177 at September 30, 1999. At March 31, 2000, the Company's
note payable balance to OWN totaled $0 (see Note 7).
In October 1999, a multi-party amendment was made to (i) of the Management
Agreement (the "Agreement"), dated as of July 14, 1999. OWN agreed to increase
its capital investment in the Company. In addition to the sum of $50,000 made
available to the Company at the closing, Own agreed to advance an additional
$50,000 so the aggregate amount of the loan available to the Company is
$100,000. On October 13, 1999, OWN elected to exercise 127,844 shares of its
Class A Warrants at a purchase price of $0.52 a share, for an aggregate purchase
price of $66,500. In consideration for such investment, the Company has agreed
to lower the exercise price of the remaining 872,156 of Class A Warrants to
$0.15.
On October 13, 1999 the Company entered into a note with a shareholder in the
amount of $100,000, bearing an interest rate of 10%, principal and interest due
and payable on August 1, 2000.
9
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On November 30, 1999, the company entered into a note with a shareholder in the
amount of $100,000, bearing an interest rate of 12%, principal and interest due
and payable on February 29, 2000. This note including interest was still
outstanding as of March 31, 2000. Negotiations are now in process to make a
partial payment and restructure the balance of the note.
The Company must still rely primarily on operating cash flow and cash management
to sustain its operations. If management cannot achieve its 2000 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
2000 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 MARCH 31, 2000
----------------------------------------------------
COMPARED WITH QUARTER ENDED MARCH 31, 1999
------------------------------------------
Net sales for the quarter ended March 31, 2000 were $216,964 compared with net
sales of $289,720 for the quarter ended March 31, 1999. The decrease in net
sales was primarily due to the delayed launch of year 1999/2000 promotional
program.
Gross margin was 82% for the quarter ended March 31, 2000 and 79% for the
quarter ended March 31, 1999.
Selling, general and administrative expenses increased approximately $26,000 for
the quarter ended March 31, 2000 compared with the quarter ended March 31, 1999
due primarily to approximately $16,000 in additional expenses for outside
accounting services, $9,000 in contract labor and $4,000 in consulting fees.
The Company decreased its advertising expenditures during the quarter ended
March 31, 2000 to approximately $8,200 from approximately $27,500 in the quarter
ending March 31, 1999.
As a result of the above, the net loss for the quarter ended March 31, 2000 was
$173,840 ($.02 per share), compared with a net loss of $120,563 ($.02 per share)
for the quarter ended March 31, 1999.
RESULTS OF OPERATIONS - SIX MONTHS ENDED MARCH 31, 2000
-------------------------------------------------------
COMPARED WITH SIX MONTHS ENDED MARCH 31, 1999
---------------------------------------------
Net sales for the six month period ended March 31, 2000 were $442,425 compared
with net sales of $560,984 for the period ended March 31, 1999. The decrease in
net sales was primarily due to the delayed launch of year 1999/2000 promotional
program and the need for a new "infomercial".
Gross margin remained relatively constant at 82% for the six-month period ended
March 31, 2000 and 80% for the six-month period ended March 31, 1999.
Selling, general and administrative expenses increased approximately $58,000 for
the six month period ended March 31, 2000 compared with the six months ended
March 31, 1999 due primarily to the following. Outside accounting services
increased approximately $22,000, consulting increased approximately $4,000,
contact labor increased approximately $9,000, increased freight cost accounted
for an increase of approximately $17,000 and repairs and maintenance in the
retail locations increased approximately $13,000.
10
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The Company decreased its advertising expenditures during the six months ended
March 31, 2000 compared with the six months ended March 31, 1999 from
approximately $40,500 to approximately $33,200 primarily due to the delayed
launch of year 1999/2000 promotional program.
As a result of the above, the net loss for the six month period ended March 31,
2000 was $354,338 ($.05 per share) compared with a net loss of $228,082 ($.04
per share) for the six month period ended March 31, 1999.
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, 1999.
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
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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: May 12, 2000 By: /S/ John C. Riemann
--------------------------------
John C. Riemann
Chief Executive Officer
(Responsible Financial Officer)
12
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 8,096
<SECURITIES> 0
<RECEIVABLES> 4,382
<ALLOWANCES> 0
<INVENTORY> 52,915
<CURRENT-ASSETS> 70,432
<PP&E> 244,695
<DEPRECIATION> 208,146
<TOTAL-ASSETS> 419,655
<CURRENT-LIABILITIES> 576,383
<BONDS> 0
0
0
<COMMON> 8,231
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 197,049
<SALES> 442,425
<TOTAL-REVENUES> 444,125
<CGS> 77,859
<TOTAL-COSTS> 720,654
<OTHER-EXPENSES> 70,387
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,422
<INCOME-PRETAX> (354,338)
<INCOME-TAX> 0
<INCOME-CONTINUING> (354,338)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (354,338)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
