<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark one)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from _______ to________
Commission file number 0-19227
ZEGARELLI GROUP INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 95-4040591
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
10318 Norris Avenue, Pacoima, CA 91352
(Address of principal executive offices)
(818) 897-9474
(Issuer's telephone number)
Cosmetic Group U.S.A., Inc. - 11312 Penrose Street, Sun Valley, CA 91352
(Former name and former address)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 5,830,438 shares of common
stock outstanding at October 24, 1997.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
<PAGE> 2
INDEX
ZEGARELLI GROUP INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheet - September 30, 1997
Condensed consolidated statements of operations - Three months and nine
months ended September 30, 1997 and 1996
Condensed consolidated statements of cash flows - Nine months ended September
30, 1997 and 1996
Notes to condensed consolidated financial statements - September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 2. Change in Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Events
Item 6. Exhibits and Reports on Form 8-K
(a) Report on Form 8-K was filed under date of September 23, 1997 with
respect to Items 2, 5 and 7.
SIGNATURES
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1.
ZEGARELLI GROUP INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS - Note 3
CURRENT ASSETS
Short term investments $ 1,000,000
Accounts receivable, less allowance
of $147,000 - Note 6 873,000
Inventory - Note 2 750,000
Due from Buyer - Note 5 500,000
Prepaid expenses and other 56,000
Due from officer/director/shareholder 75,000
-----------
TOTAL CURRENT ASSETS 3,254,000
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $139,000 124,000
NOTE RECEIVABLE FROM BUYER (face amount $3,500,000
less allowance of $1,074,000) - Note 5 2,426,000
OTHER ASSETS 268,000
-----------
$ 6,072,000
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdrawn $ 293,000
Due under finance agreement - Note 3 1,002,000
Short term note payable - Note 3 202,000
Accounts payable 1,057,000
Accrued liabilities 771,000
-----------
TOTAL CURRENT LIABILITIES 3,325,000
10% SUBORDINATED CONVERTIBLE NOTES 300,000
SHAREHOLDERS' EQUITY - Note 4
Preferred stock, $.01 par value, authorized
1,000,000 shares, none issued --
Common stock, no par value, authorized
25,000,000 shares, issued and outstanding
5,830,438 shares 7,284,000
Retained deficit (4,837,000)
-----------
2,447,000
-----------
$ 6,072,000
===========
</TABLE>
See accompanying notes.
<PAGE> 4
ZEGARELLI GROUP INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1997 1996* 1997 1996*
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 329,000 $ 1,317,000 $ 1,332,000 $ 2,722,000
Cost of sales 203,000 654,000 695,000 1,387,000
----------- ----------- ----------- -----------
Gross profit 126,000 663,000 637,000 1,335,000
Selling, general and
administrative expenses 1,862,000 999,000 3,347,000 2,988,000
Interest expense 16,000 8,000 46,000 30,000
----------- ----------- ----------- -----------
1,878,000 1,007,000 3,393,000 3,018,000
----------- ----------- ----------- -----------
Loss from continuing
operations (1,752,000) (344,000) (2,756,000) (1,683,000)
----------- ----------- ----------- -----------
Discontinued operations--
Note 5:
Income (loss) from
operations of discontinued
Contract Packaging
Business (1,843,000) 370,000 (1,848,000) 1,872,000
Gain on sale of Contract
Packaging Business 1,737,000 1,737,000
----------- ----------- ----------- -----------
(106,000) 370,000 (111,000) 1,872,000
----------- ----------- ----------- -----------
Net income (loss) $(1,858,000) $ 26,000 $(2,867,000) $ 189,000
=========== =========== =========== ===========
Per share:
Loss from continuing
operations $(.32) $(.07) $(.52) $(.33)
Income (loss) from
discontinued operations (.02) .08 (.02) .37
----------- ----------- ----------- -----------
Net income (loss) $(.34) $.01 $(.54) $.04
=========== =========== =========== ===========
Weighted average number
of common shares outstanding 5,528,438 5,063,756 5,353,324 5,059,034
=========== =========== =========== ===========
</TABLE>
* - Restated - Note 1
See accompanying notes.
<PAGE> 5
ZEGARELLI GROUP INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1997 1996
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash (used in) provided by
operating activities $(2,512,000) $ 60,000
INVESTING ACTIVITIES
Proceeds from sale of Contract Packaging
Business - net of non cash items 2,792,000
Purchase of short-term investments (1,000,000)
Purchase of property, plant and equipment (118,000) (465,000)
----------- ---------
Net cash provided by (used in)
investing activities 1,674,000 (465,000)
FINANCING ACTIVITIES
Issuance of common stock 748,000
Borrowing under new financing arrangement 1,000,000
Net payments under financing arrangement (1,042,000) 103,000
Short term borrowings 1,287,000
Other borrowings 497,000 844,000
Repayment of borrowings (2,009,000) (450,000)
Registration costs (110,000)
Loan to officer/director/shareholder (3,000)
----------- ---------
Net cash provided by (used in)
financing activities 478,000 387,000
----------- ---------
Net increase (decrease) in cash (360,000) (18,000)
Cash at beginning of period 67,000 22,000
----------- ---------
Cash (overdrawn) at end of period $ (293,000) $ 4,000
=========== =========
</TABLE>
See accompanying notes.
<PAGE> 6
ZEGARELLI GROUP INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
On September 23, 1997, after approval by the Company's shareholders and
consummation of the sale of the Contract Packaging Business, the Company filed
an amendment to its Articles of Incorporation changing its name from Cosmetic
Group U.S.A., Inc. to Zegarelli Group International, Inc.
1. Basis of Preparation
The accompanying unaudited condensed consolidated financial statements include
the accounts of the Company and its subsidiary. The statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information pursuant to Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine months ended September 30, 1997 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1997. For
further information refer to the consolidated financial statements and footnotes
thereto included in Form 10-KSB for the year ended December 31, 1996 filed by
the Company.
As discussed in Note 5, the Company sold its Contract Packaging Business on
September 23, 1997. The operations of the Contract Packaging Business is
reported as discontinued operations in the accompanying statements of operations
for all periods. The statement of operations for the 1996 periods have been
restated therefor.
At September 30, 1997, substantially all the Company's current assets and
property, plant and equipment is pledged to a lender. Current operating revenues
may not be sufficient to fund current operating expenses and pay existing past
due payables and other liabilities. The Company has instituted cost reductions
and is considering selling or entering into arrangements whereby the operations
of the hair care business will be funded. If revenues are not sufficient for
these purposes, it may be necessary to sell or otherwise dispose of the hair
care operations in order for the Company to remain as a going concern.
2. Inventory
Inventory at September 30, 1997 consists of:
<TABLE>
<S> <C>
Raw materials and components $ 350,000
Work-in-process 200,000
Finished goods 200,000
---------
$ 750,000
=========
</TABLE>
<PAGE> 7
3. Debt
During the nine months ended September 30, 1997 the Company borrowed $500,000,
of which $300,000 was paid prior to September 30, 1997. The balance, which was
borrowed from a partnership, of which the general partner is a director of the
Company, was originally due at the closing of the sale of the Contract Packaging
Business (September 23, 1997) and has been extended to December 31, 1997.
Interest is at the rate of 10% a year. As additional consideration for the loans
and extension of the due dates, the Company issued the lenders an aggregate of
75,000 shares of common stock to September 30, 1997 and 30,000 shares
subsequently. The fair market value of the shares is being charged to interest
expense over the terms of the loans. The proceeds of the loans were used to
finance short term inventory increases and general working capital requirements.
Concurrently with the signing of the agreement for the sale of the Contract
Packaging Business, the buyer loaned the Company $700,000, with interest at 10%
a year. In September 1997, the buyer loaned the Company an additional $75,000.
The loans, together with accrued interest, was paid at the closing of the sale.
In September 1997 (subsequent to the sale of the Contract Packaging Business)
the Company entered into a finance agreement pursuant to which the Company
borrowed $1,000,000, payable on demand and collateralized by substantially all
the assets of the Company and its subsidiary. The maximum amount available under
the agreement is $1,000,000. Interest is based on the prime rate, but not less
than 12.5% a year.
4. Shareholder's Equity
During the nine months ended September 30, 1997 common stock was issued as
follows:
<TABLE>
<CAPTION>
Shares Amount
------ ------
<S> <C> <C>
Settlement of an obligation 11,682 $ 20,000
Additional consideration for loans 75,000 64,000
Exercise of stock options 45,000 59,000
Exercise of warrants, less expenses 525,000 661,000
------- --------
Total 656,682 $804,000
======= ========
</TABLE>
The above warrants were issued in connection with private placements, and
originally had an exercise price of $3.75 per share. In May, 1997 the exercise
price was reduced to $1.30 per share.
As a result of the issuance of shares during the nine months ended September 30,
1997, additional options were granted to Sally Beauty Company ("SBC") and, at
September 30, 1997, there were outstanding 630,644 options issued to SBC. The
options are exercisable at approximately $1.00 to $2.06 per share and expire in
May 2000.
In August 1997, the Company granted options for the purchase of 190,000 shares
of common stock at $1 per share.
<PAGE> 8
5. Sale of Contract Packaging Business
On September 23, 1997, the Company sold to CGUSA, LLC, a privately-held New
Jersey limited liability company ("CGUSA")substantially all of the assets used
in the operations of its contract packaging business. The sale was pursuant to
an asset purchase agreement dated July 24, 1997. The purchase price for the net
assets approximated $7,200,000, of which $3,500,000 is payable in seven annual
installments of $500,000, commencing in September 1999. Interest, at the rate of
10% a year is payable quarterly. Interest and principal payable on the note is
subject to adjustment upward or downward based on adjustments to the purchase
price or offsets against liabilities for indemnification. For financial
reporting purposes the carrying amount of the note has been discounted to
$2,426,000, which is expected to provide an effective yield of 20% a year.
Of the purchase price, $500,000 was placed in escrow to be released pursuant to
adjustment to the purchase price. Between 60 and 75 days subsequent to the
closing date, CGUSA will deliver its calculation of the purchase price
adjustment, subject to the Company's right to dispute any such adjustment. If
CGUSA calculation is the same as the Company, then the escrow fund will be
released to the Company. If there is any increase in the purchase price, then
CGUSA will pay such difference (up to $500,000) and the balance, if any as an
increase in the aforementioned note. Any decrease in the purchase price will be
paid to CGUSA first in cash, from the escrow fund and then, if necessary in the
aggregate principal amount of the aforementioned note. The sale resulted in a
gain as follows:
<TABLE>
<S> <C>
Proceeds from sale $7,200,000
Allowance provided on CGUSA note (1,074,000)
Net assets sold (4,000,000)
Expenses, including sales tax,
related to sale (389,000)
----------
$1,737,000
==========
</TABLE>
A summary of the operations of the Contract Packaging Business shown as
discontinued operations in the accompanying statements of operations is as
follows:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
3 mos. ended 9 mos. ended 3 mos. ended 9 mos. ended
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 2,089,000 $ 5,895,000 $2,623,000 $7,958,000
Cost of sales 2,823,000 5,282,000 1,672,000 4,862,000
----------- ----------- ---------- ----------
Gross profit (734,000) 613,000 951,000 3,096,000
Selling, general and
administrative 990,000 2,218,000 273,000 733,000
Settlement of litigation 240,000 240,000
Interest expense 119,000 243,000 68,000 251,000
----------- ----------- ---------- ----------
1,109,000 2,461,000 581,000 1,224,000
----------- ----------- ---------- ----------
Income (loss) from
operations of
discontinued business $(1,843,000) $(1,848,000) $ 370,000 $1,872,000
=========== =========== ========== ==========
</TABLE>
<PAGE> 9
6. Other Comments
During the three months ended September 30, 1997, the Company's discontinued
Contract Packaging Business had sales of approximately $346,000 to a company
owned by a director. At September 30, 1997, accounts receivable include
approximately $439,000 from that company.
<PAGE> 10
Item 2.
ZEGARELLI GROUP INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Act of 1934, as amended. There are certain important
factors that could cause future results to differ materially from those
anticipated by management in the forward-looking statements included in the
following discussion. Among these important factors are (a) the Company's
dependence on a small number of customers, (b) recent operating losses and cash
flow deficiencies, (c) risks associated with the introduction of the Company's
Zegarelli product line, including the need to increase sales levels and expand
the Company's distribution network, (d) the Company's dependence on key
executives, (e) the variability of quarterly results, (f) the competitive
environment in the Company's markets, (g) the Company's reliance on a single
manufacturing facility, (h) product liability risks, (i) government regulation,
(j) control by management, and (k) volatility in the price of the Company's
common stock, including the possible effect on the market price of the
availability for sale and actual sales of currently outstanding shares of common
stock and shares of common stock issuable upon the exercise of outstanding
options and warrants.
GENERAL
The Company has operated, since 1995, in two segments, contract manufacturing
and the manufacture and sale of professional hair care products under the
"Zegarelli" name. Through its contract manufacturing operations, the Company
custom develops, formulates and manufactures a wide range of color cosmetics and
other personal care products for customers that market products for sale under
their own brand names. In addition to its operations as a contract manufacturer,
in 1994, the Company developed with Arnold Zegarelli, a professional hair
designer, a line of professional hair care products which are manufactured by
the Company and marketed to beauty salons and hair care professionals. Sales of
the Zegarelli product line commenced in the second quarter of 1995. On September
23,1997 the Company sold all the assets and business of its contract
manufacturing segment (Contract Packaging Business). The operations of that
segment has been shown as a discontinued operation and the following discusses
the operations of each segment separately.
The Company continues to devote substantial resources to the introduction and
marketing of its Zegarelli product line. The Company believes that it now has in
place the promotional programs and materials that are required to support its
marketing efforts.
The current sales level of the Zegarelli line are not sufficient to cover
related costs and expenses. The Company's ability to increase sales of the
Zegarelli line to the extent necessary to meet ongoing costs and expenses is
dependent upon an expansion of the Company's distribution network and increased
market acceptance of the product line. There can be no assurance that the
Company will be able to successfully establish and maintain the necessary
distribution network for the Zegarelli product line or otherwise successfully
compete in the professional hair care products market.
<PAGE> 11
RESULTS OF OPERATIONS
PROFESSIONAL HAIR CARE PRODUCTS
Net sales for the quarter and for the nine months ended September 30, 1997 were
$329,000 and $1,332,000, respectively, compared to $1,317,000 and $2,722,000,
respectively for the same periods in 1996, reductions of $988,000 (75%) for the
three month period and $1,390,000 (51%) for the nine month period. Sales for the
third quarter of 1997 and for the nine months ended September 30, 1997 were
primarily to independent distributors. Substantially all sales for three and
nine months ended September 30, 1996 were to Sally Beauty Company.
Cost of sales decreased $451,000 (69%) in the three months ended September 30,
1997 and $692,000 (50%) in the nine months then ended as compared to the same
periods in 1996. As a percentage of net sales, cost of sales was 62% for the
three months ended September 30, 1997 and 52% for the nine months ended
September 30, 1997, compared to 50% and 51%, respectively for the three months
and nine months ended September 30, 1996. The changes in the percentages to net
sales are due to changes in product mix.
Selling, general and administrative expenses increased $863,000 to $1,862,000
for the three months ended September 30, 1997 and increased $359,000 to
$3,347,000 for the nine months then ended, compared to the same periods in 1996.
As a percentage of net sales, such expenses were 566% and 251%, respectively,
for the three months and nine months ended September 30, 1997 compared to 76%
and 110% for the same periods in 1996. The increase in expenses is principally
the result of increased costs for trade shows, dealer promotions and product
education required for the expansion of the product distribution program.
Interest expense was $16,000 (three months ended September 30, 1997), and
$46,000 (nine months ended September 30, 1997), compared to $8,000 (three months
ended September 30, 1996) and $30,000 (nine months ended September 30, 1996).
The increase is attributable to greater debt outstanding in 1997.
For the three months ended September 30, 1997 and for the nine months ended
September 30, 1997 the Company reported losses of $1,752,000 and $2,756,000,
respectively from the hair care segment, compared to losses of $344,000 and
$1,683,000 for the comparable periods in 1996. The losses were principally the
result of increased selling, general and administrative expenses for the
expansion of the product line and insufficient sales to support such expenses.
<PAGE> 12
CONTRACT PACKAGING BUSINESS
Net sales for the three months ended September 30, 1997 were $2,089,000, a
reduction of $534,000 (20%) from the $2,623,000 for the same quarter last year.
For the nine months ended September 30, 1997 net sales amounted to $5,895,000,
compared to $7,985,000 for the same period in 1996, a reduction of $2,063,000,
or 26%. Sales to customers accounting for more than 10% of net sales in any
period were as follows:
<TABLE>
<CAPTION>
3 mos 9/30/97 9 mos 9/30/97 3 mos 9/30/96 9 mos 9/30/96
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Customer A 25% 18% 17% 30%
Customer B 17% 7% - -
Customer C 12% 11% 18% 12%
Customer D - - 15% 5%
Customer E - - 12% 21%
</TABLE>
Cost of sales increased $1,151,000 (69%) to $2,823,000 for the three months
ended September 30, 1997 and increased $420,000 (9%) to $5,282,000 for the nine
months ended September 30, 1997, compared to the same periods in 1996. As a
percentage of sales, cost of sales was 135% for the three months ended September
30, 1997 and 90% for the nine months ended September 30, 1997, compared to 64%
for the three months ended September 30, 1996 and 61% for the nine months ended
September 30, 1996. The percentage increase in cost of sales is attributable to
lower sales in 1997 and the effect of charging fixed costs to a lower sales base
and changes in product mix. The following contributed to the significant gross
profit decline in the third quarter of 1997: sales of approximately $350,000 at
cost or below, write off of approximately $245,000 of overhead costs based on
revised estimate of overhead rates, additional labor costs of approximately
$185,000 resulting from overtime and other premiums to produce products and
additional costs incurred for the purchase of material as a result of buying in
smaller quantities and lack of credit facilities with vendors.
Selling, general and administrative expenses increased $717,000 (263%) to
$990,000 in the three months ended September 30, 1997 and increased $1,485,000
(203%) in the nine months ended September 30, 1997, compared to the same periods
in 1996. The increase was principally the result of additional personnel costs
for marketing and administration in expectation of improved sales volume.
Interest expense increased $51,000 to $119,000 for the three months ended
September 30, 1997 and decreased $8,000 to $243,000 in the nine months ended
September 30, 1997, compared to the same periods last year. The increase in the
third quarter of 1997 resulted from additional short term borrowings to support
operations and the decrease for the nine month period decrease is attributable
to the lower interest rate on the accounts receivable line from that of last
year offset by the interest on the additional borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Working capital deficit amounted to $71,000 at September 30, 1997, compared to
working capital of $2,484,000 at December 31, 1996, a decrease of $2,555,000
from December 31, 1996. For the nine months ended September 30, 1997, operations
resulted in cash flow deficiency of $2,512,000 compared to positive cash flow of
$60,000 for the same period of 1996. Operating cash flow deficiency for the
<PAGE> 13
nine months ended September 30, 1997 resulted from a net loss, reduced by
depreciation and the reduction of accounts receivable, inventory and other
assets, offset by increases in accounts payable and accruals. In the six months
ended September 30, 1997 $118,000 was invested in new equipment. As a result of
the sale of the Contract Packaging Business, the existing accounts receivable
line and term debt on equipment was paid from the proceeds of the sale. In
addition, the Company borrowed $775,000 from the Buyer in July and September
1997, which loans, together with accrued interest were paid at closing.
During the first nine months of 1997, the Company borrowed an aggregate of
$300,000 from a company, repaid $100,000 and extended the due date of a portion
thereof. The balance of $200,000 plus interest at 10% a year was paid from the
proceeds of the sale of the Contract Packaging Business. On August 15, 1997, the
Company borrowed $200,000 from a partnership of which a director of the Company
is the general partner. The amount of $200,000 plus interest at 10% a year was
due at the closing of the Asset Purchase Agreement and was extended to December
31, 1997. As additional consideration for making the loans, the Company issued
the lenders in the aggregate 75,000 shares to September 30, 1997 and 30,000
shares subsequent thereto. The proceeds of the loans were used for working
capital.
As a result of the sale of the Contract Packaging Business and the significant
recent losses, the Company is dependent on funds generated from the operations
of the hair care business and collection of interest on the note from the Buyer.
At the present time the Company does not have the cash flow required to meet its
working capital requirements. At September 30, 1997, substantially all the
Company's current assets and property, plant and equipment is pledged to a
lender. Current operating revenues are not be sufficient to fund current
operating expenses and pay existing past due payables and other liabilities. The
Company has instituted cost reductions and is considering selling or entering
into arrangements whereby the operations of the hair care business will be
otherwise funded. If revenues are not sufficient for these purposes, it may be
necessary to sell or otherwise dispose of the hair care operations in order for
the Company to remain as a going concern.
<PAGE> 14
PART II. OTHER INFORMATION
Item 2. Change in Securities
(a) Not applicable
(b) Not applicable
(c) In January, 1997 the Company issued 11,682 shares of common stock to an
individual in settlement of an obligation of $20,000. To September 30, 1997, the
Company issued 75,000 shares of common stock firm as additional consideration
for a loans.
The issuances were not effected through any broker-dealer, and no underwriting
discounts or commissions were paid in connection with such issuances. Exemption
from registration requirements is claimed under the Securities Act of 1933 ("the
Securities Act") in reliance on Section 4(2) of the Securities Act and
Regulation D promulgated thereunder. The recipients of the securities in each
such transaction represented their intention to acquire the securities for
investment only and not with a view to, or for sale in connection with, any
distribution thereof and appropriate legends were affixed to the certificates
evidencing the securities in such transactions. All recipients had adequate
access to information about the Company.
Item 4. Submission of matters to a vote of security holders
A special meeting of shareholders was held on September 22, 1997. For the
purpose of voting on a proposal to sell the Company's Contract Packaging
Business and to approve the change of the Company's name.
Both matters were approved by a majority of the shareholders.
Item 5. Other Events
On October 21, 1997, the Board of Directors of the Company announced it had
accepted the resignations of Alfred E. Booth, Jr., as Chief Executive Officer
and Chairman, and Judith E. Zegarelli, as Vice-President-New Product Development
and Infomercial Sales. Eric J. Nickerson, a director of the Company since July
1996, was appointed the new Chief Executive Officer and Chairman. Mr. Booth and
Ms. Zegarelli remain as directors of the Company.
Item 6. Exhibits and Reports on Form 8-K
Report on Form 8-K - Filed under date of September 23, 1997, with respect to
Items 2, 5 and 7
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereto
duly authorized.
ZEGARELLI GROUP INTERNATIONAL, INC.
/s/ JENNIFER J. EGGERS
-------------------------
Date: October 28, 1997 Jennifer J. Eggers
Chief Financial Officer and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 1,000,000
<RECEIVABLES> 1,020,000
<ALLOWANCES> 147,000
<INVENTORY> 750,000
<CURRENT-ASSETS> 3,254,000
<PP&E> 263,000
<DEPRECIATION> 139,000
<TOTAL-ASSETS> 6,072,000
<CURRENT-LIABILITIES> 3,325,000
<BONDS> 0
0
0
<COMMON> 7,284,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,072,000
<SALES> 1,332,000
<TOTAL-REVENUES> 1,332,000
<CGS> 695,000
<TOTAL-COSTS> 3,347,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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</TABLE>
