<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, 2000
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 Identification No.)
incorporation or organization)
32238 Paseo Adelanto, Suite. 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, 2000, there were 9,575,048 shares outstanding of the
issuer's common stock, $.001 par value.
1
<PAGE>
BIOZHEM COSMECEUTICALS, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Condensed Financial Statements
---------------------------------------
Page
----
Condensed Balance Sheets
June 30, 2000 (unaudited) and September 30, 1999 3
Condensed Statements of Operations (unaudited)
For the Three Months Ended June 30, 2000
and June 30, 1999 4
Condensed Statements of Operations (unaudited)
For the Nine Months Ended June 30, 2000
and June 30, 1999 5
Condensed Statements of Cash Flows (unaudited)
For the Nine Months Ended June 30, 2000
and June 30, 1999 6
Notes to Condensed Financial Statements (unaudited) 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II - OTHER INFORMATION
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOZHEM COSMECEUTICALS, INC.
CONDENSED BALANCE SHEETS
ASSETS
June 30, Sept 30,
2000 1999
------------ ------------
Current Assets: (unaudited)
Cash $ 41,247 $ -
Trade accounts receivable, net - 1,347
Inventory 48,033 59,862
Other current assets 1,563 3,268
------------ ------------
Total current assets 90,843 64,477
Property and equipment, net 32,606 47,758
Intangible assets, net 274,373 316,441
Other assets 11,754 23,350
------------ ------------
Total Assets $ 409,576 $ 452,026
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued liabilities 195,278 201,396
Notes payable 200,745 59,355
Current portion of long-term debt 24,557 69,675
------------ ------------
420,580 330,426
Long-term debt, less current portion 30,801 30,811
------------ ------------
Total liabilities 451,381 361,237
------------ ------------
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; 9,575,048 and 7,985,548 shares
issued and outstanding at June 30, 2000 and
September 30, 1999, respectively 9,575 7,985
Common stock subscribed, $.001 par value -14,911
and 118,046 shares at June 30, 2000 and September
30, 1999 respectively 15 118
Additional paid-in capital 5,681,664 5,340,081
Accumulated deficit (5,733,059) (5,257,395)
------------ ------------
Total stockholders' equity (deficit) (41,805) 90,789
------------ ------------
Total Liabilities and Stockholders' Equity $ 409,576 $ 452,026
============ ============
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
BIOZHEM COSMECEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three Three
Months Months
Ended Ended
June 30, June 30,
2000 1999
------------ ------------
(unaudited) (unaudited)
Net Sales $ 140,519 $ 263,562
Cost of Sales 26,565 57,523
------------ ------------
Gross Margin 113,954 206,039
------------ ------------
Expenses:
Selling, general and administrative 240,717 394,573
Advertising (8,921) 14,195
Depreciation and amortization 20,049 19,689
------------ ------------
Total expenses 251,845 428,457
------------ ------------
Operating income (loss) (137,891) (222,418)
Interest expense (5,956) (7,194)
Other income 42,521 4,445
------------ ------------
Net income (loss) (101,326) (225,167)
============ ============
Net income (loss) per common share $ (.01) $ (.04)
============ ============
Weighted average number of common shares
outstanding 8,154,436 6,475,614
============ ============
The accompanying notes are an integral part of the condensed financial
statements.
4
<PAGE>
BIOZHEM COSMECEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Nine Nine
Months Months
Ended Ended
June 30, June 30,
2000 1999
------------ ------------
(unaudited) (unaudited)
Net Sales $ 582,944 $ 824,506
Cost of Sales 104,424 169,735
------------ ------------
Gross margin 478,520 654,771
------------ ------------
Expenses
Selling, general and administrative 883,512 979,052
Advertising 24,294 54,719
Depreciation and amortization 57,221 56,329
------------ ------------
Total expenses 965,027 1,090,100
------------ ------------
Operating income (loss) (486,507) (435,329)
Interest expense (13,378) (22,409)
Other income 44,221 4,445
------------ ------------
Net income (loss) $ (455,664) $ (453,293)
============ ============
Net income (loss) per common share $ (.06) $ (.07)
============ ============
Weighted average number of common shares
outstanding 8,175,496 6,475,614
============ ============
The accompanying notes are an integral part of the condensed financial
statements.
5
<PAGE>
BIOZHEM COSMECEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Nine Nine
Months Months
Ended Ended
June 30, June 30,
2000 1999
------------ ------------
(unaudited) (unaudited)
Net cash (used in) operating activities $ (398,085) $ (333,279)
Net cash (used in) investing activities - (69,426)
Net cash provided by financing activities 439,332 406,000
------------ ------------
Net increase in cash 41,247 3,295
Cash at beginning of period - -
Cash at end of period $ 41,247 $ 3,295
============ ============
The accompanying notes are an integral part of the condensed financial
statements.
6
<PAGE>
BIOZHEM COSMECEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - 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, 2000 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 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, 2000 are not necessarily indicative of operating results for the full
year.
NOTE 2 - ISSUANCE OF COMMON STOCK
---------------------------------
During the nine-month period ended June 30, 2000, the Company issued 103,135
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 1,086,365 shares for $293,069
during the nine-month period ended June 30, 2000 (see Note 7).
In addition, 400,000 shares were issued to a third party in consideration of
$50,000.
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 was required for
the six-month period ended march 31, 2000 under variable award accounting. These
warrants were exercised at June 30, 2000.
During the nine-month period ended June 30, 2000, 400,000 warrants at an
exercise price of $.125 per share were issued to a third party in connection
with the purchase of stock (see Note 2). The issuance of these warrants had no
impact on operations or equity.
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.
7
<PAGE>
On May 12, 2000 a principal and interest payment of $61,173 was made and a new
note was entered into combining the remaining $150,000 balance due on both notes
payable, interest at 12% with principal and interest due December 31, 2000.
At June 30, 2000, the Company's note payable balance to OWN totaled $0 (see Note
7).
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 nine-month period ended June
30, 2000 and negative working capital as of June 30, 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 was 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).
On May 1, 2000, the Company terminated its Agreement with OWN. In connection
with the termination, OWN agreed to exercise its remaining Class A Warrants for
$226,569 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
revenue of $40,000 has been recorded as other income in the quarter ended June
30, 2000.
8
<PAGE>
NOTE 8 - SEGMENT REPORTING
--------------------------
The Company is currently operating under one business segment. Thus, no
reporting is required.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
$329,737 at June 30, 2000.
The Company decreased inventory levels from approximately $53,000 to
approximately $48,000 during the quarter ended June 30, 2000 due to decreased
sales levels.
Accounts payable and accrued liabilities have decreased from approximately
$201,000 as of September 30, 1999 to approximately $195,000 as of June 30, 2000.
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 bore interest of 10% for a one-year period. If the note was not repaid at
maturity it could have been repaid with common stock of the Company valued at
$.37 per share, with piggyback registration rights. In addition, OWN agreed to
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 June 30, 2000, the Company's note
payable balance to OWN totaled $0 (see Note 7).
9
<PAGE>
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 was
$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 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 $226,569 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 revenue of $40,000 was recorded as other income in the
quarter ended June 30, 2000.
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.
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.
On May 12, 2000 a principal and interest payment of $61,173 was made and a new
note was entered into combining the remaining $150,000 balance due on both notes
payable, interest at 12% with principal and interest due December 31, 2000.
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 JUNE 30, 2000
---------------------------------------------------
COMPARED WITH QUARTER ENDED JUNE 30, 1999
-----------------------------------------
Net sales for the quarter ended June 30, 2000 were $140,519 compared with net
sales of $263,562 for the quarter ended June 30, 1999. The decrease in net sales
was primarily due to the delayed launch of year 1999/2000 promotional program.
Gross margin was 81% for the quarter ended June 30, 2000 and 78% for the quarter
ended June 30, 1999.
Selling, general and administrative expenses decreased approximately $170,000
for the quarter ended June 30, 2000 compared with the quarter ended June 30,
1999 due primarily to reduced payroll of approximately $80,000, $47,500 in video
development incurred in 1999 that was not included in 2000 and an extensive
expense reduction effort.
As a result of the above, the net loss for the quarter ended June 30, 2000 was
$101,326 ($.01 per share), compared with a net loss of $225,167 ($.04 per share)
for the quarter ended June 30, 1999.
10
<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------
COMPARED WITH NINE MONTHS ENDED JUNE 30, 1999
---------------------------------------------
Net sales for the nine-month period ended June 30, 2000 were $582,944 compared
with net sales of $824,506 for the period ended June 30, 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" to revive the marketability of the
product.
Gross margin remained relatively constant at 82% for the nine-month period ended
June 30, 2000 and 79% for the nine-month period ended June 30, 1999.
Selling, general and administrative expenses decreased approximately $95,000 for
the nine-month period ended June 30, 2000 compared with the nine months ended
June 30, 1999 due primarily to payroll and related expenses being reduced by
approximately $111,000 for the nine-month period ended June 30, 2000.
The Company decreased its advertising expenditures during the nine months ended
June 30, 2000 compared with the nine months ended June 30, 1999 from
approximately $55,000 to approximately $24,000 primarily due to the delayed
launch of year 1999/2000 promotional program.
As a result of the above, the net loss for the nine-month period ended June 30,
2000 was $455,664 ($.06 per share) compared with a net loss of $453,293 ($.07
per share) for the nine-month period ended June 30, 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
---------------------
During the nine-month period ended June 30, 2000, the Company issued 103,135
"restricted" (as that term is defined under Rule 144 of the Securities Act of
1933) 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 1,086,365 "restricted" (as that
term is defined under Rule 144 of the Securities Act of 1933) shares for
$293,069 during the nine-month period ended June 30, 2000 (see Note 7).
In addition, 400,000 "restricted" (as that term is defined under Rule 144 of the
Securities Act of 1933) shares were issued to a third party in consideration of
$50,000. The issuance was offered without general solicitation or advertising to
unrelated accredited investors under Rule 506 of Regulation D and Section 4 (2)
of the Securities Act of 1933.
11
<PAGE>
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.
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, 2000 By: /S/ John C. Riemann
------------------------------
John C. Riemann
Chief Executive Officer
(Responsible Financial Officer)
12
