UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended August 31, 1998 Commission File Number 0-14449
BeautiControl Cosmetics, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-2036343
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
2121 Midway, Carrollton, TX 75006
(Address including zip code of principal executive offices)
972/458-0601
(Registrant's telephone number including area code)
Indicated below is the number of shares outstanding of each class of the
registrant's common stock, as of October 9, 1998.
Title of Each Class of Common Stock Number of Shares Outstanding
Common Stock, $0.10 par value 7,220,198 shares
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 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
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statement
Index to BeautiControl Cosmetics, Inc. Consolidated Financial
Statement
Page
Balance Sheet 3-4
Statements of Income 5
Statements of Cash Flows 6
Notes to Financial Statements 7-8
2
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
ASSETS
August 31, November 30,
1998 1997
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $11,261,419 $ 720,087
Accounts receivable-net of
allowance for doubtful accounts
of $650,100 and $658,400 at
August 31, 1998 and
November 30, 1997, respectively 2,107,514 702,502
Inventories
Raw materials 4,804,032 4,854,267
Finished goods 7,931,645 7,945,044
12,735,677 12,799,311
Deferred income taxes 1,529,760 1,529,760
Prepaid expenses 1,207,600 621,785
Income tax receivables 1,479,195 726,962
Other current assets 208,623 124,802
Total current assets 30,529,788 17,225,209
PROPERTY AND EQUIPMENT, AT COST 24,533,402 23,359,187
LESS ACCUMULATED DEPRECIATION
AND AMORTIZATION 14,990,512 13,731,649
9,542,890 9,627,538
OTHER ASSETS
Cost in excess of net tangible
assets, acquired, net of
amortization of $878,200 and
$828,500 at August 31, 1998 and
November 30, 1997, respectively 1,773,068 1,822,780
Other, net of amortization of
$568,500 and $556,700 at August
31, 1998 and November 30, 1997,
respectively 805,863 680,811
Total assets $42,651,609 $29,356,338
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
August 31, November 30,
1998 1997
<S> <C> <C>
CURRENT LIABILITIES
Short term borrowings $ 6,500,000 $ -
Accounts payable - trade 5,803,775 3,935,748
Sales tax payable 749,429 748,907
Accrued commissions and awards 2,340,439 1,784,307
Accrued compensation 162,965 544,575
Accrued other taxes 118,668 462,196
Other accrued liabilities 1,094,264 1,295,266
Deferred income 613,396 1,063,201
Total current liabilities 17,382,936 9,834,200
DEFERRED INCOME TAXES 440,605 440,605
LONG TERM BORROWINGS - 1,200,000
OTHER LONG TERM OBLIGATIONS 37,518 -
COMMITMENTS & CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock
Authorized - 1,000,000 shares,
$.10 par value
Issued and outstanding - none - -
Common stock
Authorized - 20,000,000 shares,
$.10 par value
Issued - 10,928,998 and
9,637,198 shares at August 31,
1998 and November 30, 1997,
respectively 1,092,900 963,720
Capital in excess of par value 23,831,555 13,584,650
Retained earnings 30,771,289 34,238,357
55,695,744 48,786,727
Less cost of 3,708,800 common
shares held in treasury at
August 31, 1998 and November 30,
1997 30,905,194 30,905,194
24,790,550 17,881,533 Total liabilities and
Total liabilities and
stockholders' equity $42,651,609 $29,356,338
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
August 31, August 31, August 31, August 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Sales $16,610,951 $17,306,236 $54,754,440 $53,266,386
Cost of goods sold 5,557,115 4,486,895 16,055,859 13,634,384
Gross profit 11,053,836 12,819,341 38,698,581 39,632,002
Selling expenses 9,764,028 8,044,626 27,141,367 22,754,621
General and
administrative expenses 5,044,353 4,471,006 13,811,465 13,511,232
14,808,381 12,515,632 40,952,832 36,265,853
Income (loss) from
operations (3,754,545) 303,709 (2,254,251) 3,366,149
Other income and expenses
Interest income 141,219 35,271 189,180 100,129
Other, net (112,556) 39,632 (65,423) 131,974
28,663 74,903 123,757 232,103
Income (loss) before
income taxes (3,725,882) 378,612 (2,130,494) 3,598,252
Income taxes (1,227,785) 194,646 (635,221) 1,374,716
Net income (loss) ($2,498,097) $ 183,966 ($1,495,273) $2,223,536
Net income (loss) per
common share ($0.39) $0.03 ($0.24) $0.38
Weighted average common
shares 6,398,459 5,928,331 6,120,774 5,899,138
Net income (loss) per
common share -
assuming dilution ($0.39) $0.03 ($0.24) $0.36
Weighted average common
shares - assuming 6,398,459 6,111,879 6,120,774 6,193,660
dilution
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
<CAPTION>
Nine Months Ended
August 31, August 31,
1998 1997
<S> <C> <C>
Net cash provided by (used in)
operating activities ($2,014,719) $ 842,034
Cash flows from investing activities:
Purchase of property and equipment (1,174,215) (951,383)
Purchase of other assets (59,283) -
Net cash used in
investing activities (1,233,498) (951,383)
Cash flows from financing activities:
Proceeds from issuance of common
stock 10,376,085 876,042
Borrowings 5,300,000 800,000
Dividends paid (1,886,536) (1,860,250)
Net cash provided by (used in)
financing activities 13,789,549 (184,208)
Net increase (decrease) in cash and
cash equivalents 10,541,332 (293,557)
Cash and cash equivalents at the
beginning of the period 720,087 884,384
Cash and cash equivalents at the end
of the period 11,261,419 590,827
Supplemental Cash Flow Information:
Income Taxes (63,500) 1,569,000
Interest 192,600 232,400
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
6
<PAGE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED August 31, 1998 AND August 31, 1997
Note 1 - Basis of Presentation
In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments, consisting of only
normal recurring adjustments, necessary to present fairly the
financial position as of August 31, 1998 and November 30, 1997
and the results of operations and cash flows for the three and
nine months ended August 31, 1998 and August 31, 1997. The
results for the three and nine months ended August 31, 1998 are
not necessarily indicative of the results for the year.
While the Company believes that the disclosures presented are
adequate to make other information not misleading, it is
suggested that these financial statements be read in conjunction
with the consolidated financial statements and notes included in
the Company's annual report on Form 10-K for the year ended
November 30, 1997.
Note 2 - Earnings Per Share
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128)
Earnings per Share. This statement required companies to present
basic earnings per share and, if applicable, diluted earnings per
share. The Company adopted SFAS 128 on December 1, 1997. The
following table sets forth the computation of basic and diluted
earnings per share:
7
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
August 31, August 31, August 31, August 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) -
Numerator for basic
and diluted earnings
per share-income
available to
common stockholders ($2,498,097) $ 183,966 ($1,495,273) 2,223,536
Denominator:
Denominator for basic
earnings per share-
weighted-average
shares 6,398,459 5,928,331 6,120,774 5,899,138
Effect of dilutive
securities:
Employee stock
options - 183,548 - 294,522
Denominator for
diluted earnings per
share-adjusted
weighted-average
shares and assumed
conversions 6,398,459 6,111,879 6,120,774 6,193,660
Basic earnings (loss)
per share ($0.39) $0.03 ($0.24) $0.38
Diluted earnings (loss)
per share ($0.39) $0.03 ($0.24) $0.36
</TABLE>
8
<PAGE>
Note 3 - Line of Credit
During the quarter, the Company had a $15,000,000 line of credit
with Bank One available to use for expansion and for operating
cash when needed for the business. The interest rate is based on
a LIBOR rate plus a spread that adjusts with the debt ratio. A
commitment fee of .25% is paid quarterly based on the unused
portion of this line of credit. The weighted average interest
rate for the first nine months of 1998 was 7.12%; for 1997 the
average was 6.85%.
In the quarter ended August 31, 1998, the Company missed one
covenant of its loan agreement which is primarily due to the
Company s expansion strategy and a onetime non-cash write-down of
inventory. As of October 5, 1998, the Company had $7,600,000
outstanding on this line of credit. With this occurrence, the
bank may be able to end and/or limit this line of credit
arrangement or declare outstanding principal and interest amounts
due and payable, or limit further borrowings. Currently, the
Company has good bank relations and anticipates having long-term
funding in place during the fourth quarter of the year; however,
the Company does have funds in excess of its borrowings including
$11,261,000 in cash and short-term U.S. Treasury bills.
Note 4 - Reclassifications
Certain amounts for prior periods may have been reclassified to
conform to current period presentation.
Note 5 - Inventories
Inventories (in thousands) consist of the following:
<TABLE>
<CAPTION>
August 31, November 30,
1998 1997
<S> <C> <C>
Finished Goods $10,535 $ 9,325
Raw Materials 5,471 5,559
Reserve for (3,270) (2,085)
Obsolescence
Total $12,736 $12,799
</TABLE>
9
<PAGE>
Note 6 - Stockholder's Equity
On August 3,1998, the Company completed a private equity placement
where 1,200,000 shares of common stock were issued in exchange for
$9,912,000 in cash. The shares were sold to Jim Sowell
Construction Company, Inc., an affiliate of Sowell & Company, a
Dallas based firm with real estate operations and investment
holdings.
Note 7 - New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 (SFAS 133), Accounting for Derivative
Instruments and Hedging Activities, which is required to be
adopted in years beginning after June 15, 1999. The statement
permits early adoption as of the beginning of any fiscal quarter
after its issuance. FAS No. 133 requires that all derivatives be
recognized on the balance sheet at fair value. Derivatives that
do not qualify as hedges must be adjusted to fair value through
income. Depending on the nature of the hedge transaction, changes
in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive
income until the hedged item is recognized in earnings. The
ineffective portion of a derivative s change in fair value will be
recognized in current period earnings. At the present time, the
Company is not engaged in any derivative activity and therefore
has not determined the impact that the adoption of FAS No. 133
would have on earnings or statement of financial position if
derivative instruments were to be used.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information(SFAS 131).
SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures
about products and services, geographic areas, and major
customers. The Company will be required to adopt SFAS 131
in fiscal 1999. Currently, the Company anticipates that only the
results of its international operations in the event they become
material will be required to be separately disclosed from
domestic operations under the reporting guidelines of SFAS 131.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS 130). SFAS 130 establishes standards
for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.
Under existing accounting standards, other comprehensive income
shall be classified separately into foreign currency items,
minimum pension liability adjustments, and unrealized gains and
losses on certain investments in debt and equity securities.
Comprehensive income is defined as the change in equity (net
assets) of a business enterprise during a period from transactions
and other events and circumstances from nonowner sources. It
includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners.
This statement is effective for the Company on December 1, 1998.
The Company will be required to separately disclose the components
of comprehensive income listed above.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
Quarters ended August 31, 1998 and August 31, 1997. Net sales
were $16,610,951 for the third quarter of 1998 compared to
$17,306,236 in 1997. A decrease in domestic sales continues to
reflect the strength of the U.S. economy which has low
unemployment and low inflation and which is a difficult
environment for direct selling. Domestic sales decreased 11.6%
compared to the same period last year. The Taiwan branch
contributed 7.9% of total Company sales in the third quarter of
1998. There were no new significant product offerings during the
10
<PAGE>
third quarter. However, as an extension to our new skin care
packaging which was presented during the first quarter of 1998,
the Company introduced its new glamour packaging at its annual
sales conference in August. To address the decline in domestic
sales, primary focus will be on incenting Consultants to remain
active in purchasing products and building sales to their clients.
The Company will continue to offer selective product discounts and
promotions and maintain its support in the training and
development of its new Consultants.
Gross profit margins for the third quarter of 1998 were 66.5%
compared to 74.1% in 1997. The decrease is a direct result of a
$1,550,000 onetime non-cash write-down of inventory in the third
quarter of 1998. This write-down was due to the excess supply of
dated inventory for a product line that was introduced in 1996.
Following the product line's highly successful introduction, it
settled to a modest lower than expected sales level. Excluding
the impact of obsolete inventory expense, gross profit margins
remained comparable to prior year.
Selling, general and administrative expenses as a percent of sales
increased to 89.1% in 1998 from 72.3% in 1997. The majority of
this increase is due to Asian expansion and ongoing operating
costs which totaled over $1.9 million compared to $579,000
expansion costs in 1997. Also, commissions for third quarter 1998
were 4.6% of sales higher than third quarter 1997. Taiwan
commissions as a percent of sales contributed 3.4% of this
increase. Domestic commissions as a percent of sales were higher
this year versus last year. This is attributed to the improved
compensation plan introduced in 1997 which provides higher
compensation to leadership Consultants. Promotion costs also
increased this year over the same period last year due to
additional qualifications for prizes during the current quarter
stemming from the second quarter recruiting promotion.
Net income decreased to ($2,498,097) in 1998 from $183,966 in 1997
mainly due to the combined effects of a decrease in domestic sales
and the inventory write-off provision noted above. The Company is
determined to support the base U.S. business and has made only
modest reductions in overhead costs because existing resources are
vital to the success of both national and international expansion
programs. The overall strategy will be to maintain efforts
expanding our businesses both here and abroad. The Taiwan branch
continues to grow where its team of distributors now exceeds
10,000. Start-up of the Hong Kong business is underway with
operations planned to begin in early 1999. The Company expects
expansion to selected countries in Asia will provide sales and
profit growth over the long term. The short term investment
capital and start-up expenses are necessary for this expansion and
will continue to impact earnings during the remainder of 1998 and
into 1999.
11
<PAGE>
Nine months ended August 31, 1998 and August 31, 1997. Sales for
the first nine months of 1998 were $54,754,440 compared to
$53,266,386 in 1997. This increase in sales was a result of the
revenue contribution provided by the Taiwan branch.
Gross profit margins decreased to 70.7% in 1998 from 74.4% in
1997. Lower gross profit margins in 1998 were due to increases to
obsolete inventory reserves in the third quarter, as noted above,
combined with the discounted cost of demonstration kits sold to
new Consultants during the March and April recruiting promotion.
For the first nine months of 1998, selling, general, and
administration expenses increased to 74.8% of sales from 68.1% in
1997. This was primarily attributable to Asian expansion and
operating costs, commissions, and promotion costs primarily
incurred during the second quarter recruiting promotion.
Other income and expense decreased to $123,757 in 1998 from
$232,103 in 1997. This was due to lower investment related income
as a result of the liquidation of investments in the fourth
quarter of 1997.
Net income decreased to ($1,495,273) in 1998 from $2,223,536 in
1997 as a result of lower profit margins and higher SG&A expenses
due to reasons stated above.
Liquidity and Capital Resources
Working capital increased to $13,147,000 at August 31, 1998
compared to $7,391,000 at November 30, 1997. This is due to an
increase in the Company's cash position to $11,261,000 at August
31, 1998 versus $720,000 at November 30, 1997. Primary sources of
cash were provided through financing activities of both issuance
of stock and an increase in borrowings. On August 3, 1998, the
Company received $9,912,000 in cash in exchange for 1,200,000
shares of common stock offered through a private equity placement.
As of August 31, 1998, the Company had also utilized more
borrowing on its available line of credit. Total debt increased
by $5,300,000 to $6,500,000 at August 31, 1998 compared to
$1,200,000 at November 30, 1997.
Another factor affecting working capital was an increase in
accounts receivable of $1,400,000. This was due to credit
programs offered on a variety of product and introductory
promotions during August and at the Company's annual sales event
with payments to be processed in September.
During 1997, the Company embarked upon its global expansion
strategy and began funding investments for expanding its
operations into Asia. As expected in 1998, these expansions are
requiring additional investments in expensed costs, and in capital
and inventory. However, the Company believes that expansion into
selective markets will provide the potential for sound long-term
sales and profit growth.
During the quarter, the Company had a $15,000,000 line of credit
with Bank One available to use for this expansion and for
operating cash when needed for the business. The interest rate is
based on a LIBOR rate plus a spread that adjusts with the debt
ratio. A commitment fee of .25% is paid quarterly based on the
unused portion of this line of credit. The weighted average
interest rate for the first nine months of 1998 was 7.12%; for
1997 the average was 6.85%.
12
<PAGE>
Under the terms of this line of credit, the Company has covenants
related to certain financial ratios. In the quarter ended August
31, 1998, the Company missed one covenant of its loan agreement
which is primarily due to the Company's expansion strategy and a
onetime non-cash write-down of inventory. As of October 5, 1998,
the Company had $7,600,000 outstanding on this line of credit.
With this occurrence, the bank may be able to end and/or limit
this line of credit arrangement or declare outstanding principal
and interest amounts due and payable, or limit further borrowings.
Currently, the Company has good bank relations and anticipates
having long-term funding in place during the fourth quarter of the
year; however, the Company does have funds in excess of its
borrowings including $11,261,000 in cash and short-term U.S.
Treasury bills. The Company does not expect the timing of its
expansion plans to be affected.
Year 2000 Issues
The Company defines the Year 2000 issues as those related to the
inability of some computer hardware or software to interpret a
two-digit year expressed as 00" as the Year 2000. When the Year
2000 begins, these computers may interpret 00" as the Year 1900
and either stop processing date-related computations or will
process them incorrectly. All software, computer hardware,
building facilities and equipment utilized by the Company require
assessment to determine that they will continue to operate
accurately when they encounter a Year 2000 date before and after
January 1, 2000.
The Company has initiated a task force committee to address Year
2000 issues. The committee s purpose is to direct the project for
assessment, remediation and implementation of solutions and
contingency plans related to Year 2000 issues. The project plan
addresses information technology systems (IT systems) such as
computer software and hardware and non-information technology
systems (Non-IT systems) such as manufacturing equipment,
utilities and facilities. In addition, the plan addresses Year
2000 issues relating to third parties with which the Company has a
material relationship. The Company has planned readiness prior
to January 1, 2000 due to the likelihood of encountering Year 2000
date processing prior to that time.
The Company has completed the assessment of IT systems and has
implemented almost 70% of software upgrades scheduled. The
Company is on target to reach its initiative to complete all
software related upgrades prior to January 1999 and hardware
upgrades during the first quarter of 1999. The overall project is
estimated to be about 55% complete and on target to be complete by
March of 1999. The status of the project by area is as follows:
13
<PAGE>
<TABLE>
<CAPTION>
Estimated
Start Date End Date % Complete
<S> <C> <C> <C>
IT Systems:
Assessment of Software 04/01/1998 06/30/1998 100%
Remediation/Testing of
Software 06/03/1998 12/31/1998 70%
Assessment of Hardware 07/01/1998 08/15/1998 100%
Remediation/Testing of
Hardware 11/01/1998 02/28/1999 0%
Non-IT Systems:
Assessment 06/01/1998 10/31/1998 60%
Remediation/Testing 11/01/1998 02/28/1999 0%
</TABLE>
The Company prepared and mailed a Year 2000 readiness survey to
numerous third party suppliers and service providers upon which
the Company relies for various goods and services. As of
September 30, 1998, the Company has received written responses
from 43% of those mailed. Of those responding, 62% are either
currently compliant or anticipate that they will address all Year
2000 issues by December 1998. The committee is currently
evaluating responses of the remaining 38% to schedule follow-up
correspondence and to address contingency plans for alternate
sources and suppliers. A follow up mailing to all non-respondents
is scheduled for November 1, 1998 with responses due back by
November 30, 1998. The Company has scheduled an additional
mailing in January 1999 to verify that the status of the projects
of key suppliers are on schedule as estimated in their original
written responses.
The committee plans to prepare specific contingency plans, if
necessary, to mitigate the potential risks associated with non-
readiness of key suppliers and vendors, information technology and
non-information technology areas by March 1999. Additionally, the
Company plans to continue its current operating policy to maintain
60 to 90 days of finished goods on-hand of most products,
especially core lines, as well as on-hand quantities of
components. The Company as a part of its normal operating plan
contracts with a third party for backup computer hardware service
in the event of a failure or serious interruptions of its on-site
operations.
14
<PAGE>
Costs for implementing the Year 2000 project are expected to be
less than $350,000 over the two year fiscal period and are not
expected to materially affect results of operations or the
financial position of the Company. Expenditures relating to Year
2000 to date are estimated to be $130,000, due primarily to
software remediation, and were funded through operating cash
flows. Other IT projects and initiatives have not been adversely
affected by the Company s resource allocation to the Year 2000
project. The Company currently believes that it is addressing
Year 2000 issues on a timely and adequate basis according to
suggested methodologies and procedures. Although the Company is
addressing the Year 2000 issue and plans to monitor its progress
through completion, there can be no assurance that total
compliance internally as well as with third party vendors and
suppliers will be achieved.
Certain statements in this Management s Discussion and Analysis
section contain forward-looking information. These statements are
based on current expectations, and actual results could differ
materially. Important factors that could cause actual results to
differ materially from those projected in forward-looking
statements include, but are not limited to the following:
Consultants sales activity levels, recruiting of new Consultants,
services of certain members of senior management, new product
introductions, protection of intellectual property rights and
third party infringement, changes in U.S. or international
economic conditions, results of international operations including
governmental, regulatory, political and foreign exchange rate
impacts, global and domestic expansion efforts, capital resources
and ability to obtain necessary financing, risks and costs related
to the Year 2000.
15
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On August 3, 1998, the Company completed a private equity
placement where 1,200,000 shares of common stock were issued in
exchange for $9,912,000 in cash. The shares were sold to Jim
Sowell Construction Company, Inc., an affiliate of Sowell &
Company, a Dallas based firm with real estate operations and
investment holdings.
Item 3. Defaults Upon Senior Securities
In the quarter ended August 31, 1998, the Company missed one
financial covenant of its loan agreement which is primarily due to
the Company s expansion strategy and a onetime non-cash write-down
of inventory. As of October 5, 1998, the Company had $7,600,000
outstanding on this line of credit. With this occurrence, the
bank may be able to end and/or limit this line of credit
arrangement or declare any outstanding principal and interest
amounts due and payable, or limit further borrowings. Currently,
the Company has good bank relations and anticipates having long-
term funding in place during the fourth quarter of the year;
however, the Company does have funds in excess of its borrowings
including $11,261,000 in cash and short-term U.S. Treasury bills.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On August 21, 1998, the Company filed a Form 8-K
announcing on August 3, 1998 a private equity placement
of 1,200,000 common shares in exchange for $9,912,000 in
cash. The shares were sold to Jim Sowell Construction
Company, Inc., an affiliate of Sowell & Company, a
Dallas based firm with real estate operations and
investment holdings.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant had duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BeautiControl Cosmetics,
Inc.
(Registrant)
Date: 10/14/98 /s/ RICHARD W. HEATH
Richard W. Heath
President, Chief Executive Officer
Date: 10/14/98 /s/ M. DOUGLAS TUCKER
M. Douglas Tucker
Senior Vice President-Finance
Principle Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> AUG-31-1998
<CASH> 11261419
<SECURITIES> 0
<RECEIVABLES> 2757603
<ALLOWANCES> 650000
<INVENTORY> 12735677
<CURRENT-ASSETS> 30529788
<PP&E> 24533402
<DEPRECIATION> 14990512
<TOTAL-ASSETS> 42651609
<CURRENT-LIABILITIES> 17382936
<BONDS> 0
0
0
<COMMON> 1092900
<OTHER-SE> 23697650
<TOTAL-LIABILITY-AND-EQUITY> 42651609
<SALES> 16610951
<TOTAL-REVENUES> 16610951
<CGS> 5557115
<TOTAL-COSTS> 20365496
<OTHER-EXPENSES> (28663)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73404
<INCOME-PRETAX> (3725882)
<INCOME-TAX> (1227785)
<INCOME-CONTINUING> (2498097)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2498097)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
