<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 30, 1996
[ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange
Act For the transition period from ________________ to ______________
Commission File Number 33-55254
Essential Resources, Inc.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Nevada 87-0485317
- ------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation) No.)
412 Pleasant Valley Way, Suite 205, West Orange, NJ 07052
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 669-2809
Indicate by a 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 [X] Yes [ ] No
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Outstanding as of
Class December 12, 1996
- ------------------------------------ -----------------
$.001 par value Class A Common Stock 3,795,179 Shares
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements
Balance Sheets as of June 30, 1996 and September 30, 1996.......1
Statement of Operations for the Three
Months Ended September 30, 1996...............................2
Statement of Stockholders' Equity for the Three Months
Ended September 30, 1996......................................3
Statement of Cash Flows for the Three
Months Ended September 30, 1996...............................4
Summary of Accounting Policies and
Notes to Financial Statements.................................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......12
Part II. Other Information..............................................14
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, September 30,
1996 1996
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current:
Cash $ 218,195 $ 107,771
Receivables from factors 73,601 58,795
Accounts receivable 148,496 431,094
Inventories 329,597 681,183
Prepaid expenses 456,608 470,467
Deferred plantation management costs 62,299 120,357
Other current assets 94,237 106,012
------------ -------------
Total current assets 1,383,033 1,975,679
------------ -------------
Property, plant and equipment, at cost less
accumulated depreciation 76,291 286,319
Investment in Queensland Essential Oils Limited 133,250 141,969
Other assets 62,813 142,725
------------ -------------
$1,655,387 $2,546,692
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accruals and other $ 477,152 $ 748,164
Income taxes payable 91,000 123,543
Loans payable to related parties 525,113 271,355
Loans payable 300,000
Dividends payable 52,376 112,744
Current portion of capitalized lease obligations 29,031
Deferred income taxes 79,000 79,473
------------ -------------
Total current liabilities 1,224,641 1,664,310
------------ -------------
Accounts payable, long-term 98,680 27,980
Capitalized lease obligations 132,848
------------ -------------
Total liabilities 1,323,321 1,825,138
------------ -------------
Commitments and contingencies
Stockholders' equity
Common stock, $.001par value -
shares authorized 25,000,000; issued
2,519,058 and 2,885,084 respectively 2,519 2,855
Additional paid-in capital 863,960 1,350,324
Retained earnings 370,182 314,954
Foreign currency translation adjustment 63,778 21,794
Receivable from Collage (488,548) (418,756)
------------ -------------
811,891 1,271,171
Less: Treasury stock, 238,662 shares
and 265,139 shares at cost respectively (479,825) (549,617)
------------ -------------
Total stockholders' equity 332,066 721,554
------------ -------------
$1,655,387 $2,546,692
------------ -------------
</TABLE>
See accompanying summary of accounting policies and notes
to consolidated financial statements.
1
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended September 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
SALES $1,187,542
COST OF SALES 509,877
----------
GROSS PROFIT 677,665
----------
OPERATING EXPENSES:
Selling, general and administrative 590,911
Depreciation 9,268
----------
TOTAL OPERATING EXPENSES 600,179
----------
OPERATING INCOME 77,486
OTHER INCOME (EXPENSE):
Export grant 39,610
Loss on foreign currency transactions (6,640)
Interest expense (20,940)
----------
NET INCOME BEFORE INCOME TAXES 89,516
INCOME TAXES 32,000
----------
NET INCOME $ 57,516
----------
Earnings per common share - primary and fully diluted $0.02
----------
Weighted average common shares outstanding 2,382,121
Weighted average common stock equivalents outstanding (options) 1,802,844
----------
Weighted average common shares outstanding and weighted
average common stock equivalents outstanding 4,184,965
----------
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
2
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign
Common stock Additional Retained currency Receivable Total
----------------- paid-in earnings translation from Treasury stockholders'
Shares Amount capital (deficit) adjustment Collage stock equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1996 2,519,058 $2,519 $ 863,960 $370,182 $63,778 ($488,548) ($479,825) $332,066
Net income for the period 57,516 57,516
Foreign currency translation
adjustment (41,984) (41,984)
Issuance of shares pursuant to
conversion of debt 170,200 170 370,530 370,700
Issuance of shares pursuant to
exercise of warrants 165,826 166 115,834 116,000
Dividends (112,744) (112,744)
- ------------------------------------------------------------------------------------------------------------------------------------
2,855,084 2,855 1,350,324 314,954 21,794 (488,548) (479,825) 721,554
Purchase of treasury stock 69,792 (69,792)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance September 30, 1996 2,855,084 $2,855 $1,350,324 $314,954 $21,794 ($418,756) ($549,617) $721,554
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
3
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three months ended September 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 57,516
----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 9,268
Loss on foreign currency transactions 6,640
Deferred income taxes 473
Shares issued for services rendered 23,200
Foreign currency translation adjustment and other (48,624)
(Increase) decrease in:
Receivable from factors 14,806
Accounts receivable (282,598)
Inventories (351,586)
Prepaid expenses 78,941
Deferred plantation management costs (58,058)
Other current assets (11,775)
Other assets (79,912)
Increase (decrease) in:
Accounts payable, accruals and other 271,012
Income taxes payable 32,543
----------
Total adjustments (395,670)
----------
Net cash used in operating activities (338,154)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (57,417)
Investment in Queensland Essential Oils (8,719)
----------
Net cash used in investing activities (66,136)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (52,376)
Loans payable 346,242
----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 293,866
----------
NET DECREASE IN CASH (110,424)
CASH, BEGINNING OF PERIOD 218,195
----------
CASH, END OF PERIOD $107,771
----------
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
4
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES - INFORMATION
AS OF SEPTEMBER 30, 1996 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
Organization and Business Essential Resources, Inc. ("Essential"),
through its wholly- owned subsidiaries,
Collage International Health Pty Ltd.
("Collage International Health") and Essential
Nature Products Pty Ltd. ("Essential Nature
Products"), collectively referred to
hereinafter as the "Company", develops,
markets and distributes a wide variety of
health, nutritional, beauty-aid and lifestyle
products derived from the extracts and tissues
of Asian-Pacific region plants, flowers and
animals. The Company's products are sold
primarily in duty-free and tax-free stores in
Australia, New Zealand, Korea, Japan, Egypt,
Qatar and the United Kingdom.
Interim Financial Statements The financial statements for the Company
have been prepared in accordance with
generally accepted accounting principles for
interim financial information and with the
instructions to Form 10-Q and Article 10 of
Regulation S- X. 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 month period ended September 30, 1996
are not necessarily indicative of the results
that may be expected for the year ended June
30, 1997. All significant intercompany
balances and transactions have been eliminated
in consolidation. For further information,
refer to the audited consolidated financial
statements of the Company as of June 30, 1996.
Principles of Consolidation The consolidated financial statements include
the accounts of Essential, and its
wholly-owned Australian subsidiaries,
Essential Nature Products and Collage
International Health. All significant
intercompany balances and transactions have
been eliminated on consolidation.
5
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES - INFORMATION
AS OF SEPTEMBER 30, 1996 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
Change in Fiscal Year In January 1996, the Company elected to
change from a December 31 to a June 30
year-end to correspond to the fiscal year of
its Australian subsidiaries.
Earnings Per Common Share Primary and fully diluted earnings per common
share are computed using the treasury stock
method, modified for stock options outstanding
in excess of 20% of the total outstanding
shares of common stock. Under this method, the
aggregate number of shares outstanding
reflects the assumed use of proceeds from the
hypothetical exercise of the outstanding
options and warrants, unless the effect on
earnings is anti-dilutive. The assumed
proceeds are used to repurchase shares of
common stock at the average market value
during the period to a maximum of 20% of the
shares outstanding. The balance of the
proceeds, if any, is used to reduce
outstanding debt and invest in treasury bills
with the assumed interest expense savings and
interest income being added to the results of
operations for the reported period.
Fully diluted earnings per share also reflects
the assumed use of proceeds from the
hypothetical exercise of options to purchase
common stock at the ending market price for
the reported period.
Inventories Inventories are valued at the lower of cost or
market. Cost for raw materials and finished
goods are determined by the first-in,
first-out (FIFO) method.
Property, Plant and Equipment Assets are stated at cost. Depreciation and
amortization is computed over the estimated
useful lives of the assets on the
straight-line method for financial reporting
purposes.
Foreign Currency Translation The Company's subsidiaries in Australia use
the Australian dollar as the functional
currency and translate all assets and
liabilities at year-end exchange rates, all
income and
6
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES - INFORMATION
AS OF SEPTEMBER 30, 1996 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
expense accounts at average rates and record
adjustments resulting from the translation as
a separate component of stockholders' equity
titled, "Foreign currency translation
adjustments."
Export Grants Grants received from the Australian
government relating to expenses incurred in
connection with export market development are
recognized as income when conditions for
receipt are met.
Taxes on Income The Company does not provide taxes on
unremitted earnings of its Australian
subsidiaries since the Company's intention is
to indefinitely reinvest these earnings.
Fair Value of
Financial Instruments The carrying value of financial instruments at
June 30, 1996, including cash, trade and other
receivables, accounts payable, other payables
and loans payable to related parties,
approximate fair value due to the timing of
expected settlement of these financial
instruments.
7
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - INFORMATION
AS OF SEPTEMBER 30, 1996 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
1. Receivables from Factors The Company factors a significant portion of its
trade accounts receivable, with recourse, up to
maximums established by the factors for individual
accounts.
2. Inventories Inventories are summarized as follows:
September 30, 1996 June 30, 1996
(Unaudited)
-------------------------------------------------
Raw materials $ 375,536 $ 117,141
Packaging and supplies 154,645 108,140
Finished goods 151,002 104,316
-------------------------------------------------
Total $ 681,183 $ 329,597
========= =========
3. Property, Plant and
Equipment Property, plant and equipment are summarized by
major classifications as follows:
September 30, 1996 June 30, 1996
(Unaudited)
-------------------------------------------------
Plant and equipment $ 49,864 $ 40,765
Display equipment 42,894 31,978
Office equipment 41,598 10,065
Furniture and fixtures 10,499 7,703
Motor vehicles 2,066 2,066
Equipment under capital
leases 164,952
------------------------------------------------
311,873 92,577
Less:
Accumulated depreciation 25,554 16,286
-------- --------
Total $286,319 $ 76,291
======== ========
4. Dividends Payable On September 12, 1996, dividends payable on October
30, 1996 of $.05 per share of common stock (on a
post-split basis) were declared.
5. Commitments and
Contingencies (a) In August 1996, the Company entered into an
agreement to purchase 200,000 kilograms of tea tree
oil annually for a period of ten years.
8
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - INFORMATION
AS OF SEPTEMBER 30, 1996 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
(b) The Company has an oral agreement (which terminates
in April 1997) to purchase for approximately
$1,000,000 the 248.6 acres of plantation land
currently being leased by Queensland Oils. Closing
is subject to execution of an agreement
satisfactory to the Company, delivery of clear
title to the property and the securing of
Australian Government Foreign Investment Review
Board approval (Australian law prohibits ownership
of land by foreign corporations without government
approval). The Company does not currently possess
sufficient funds for this purchase and is currently
seeking equity and/or asset based financing to
purchase the property. There can be no assurance
that the Company will be able to obtain such
funding.
(c) The Company entered into a sales agreement as of
November 15, 1996 with C.B. & P. Pty Ltd.
("C.B.P."), which is an overseas wholly-owned
subsidiary of China National Export Bases
Development Corporation, a state owned enterprise
of the Peoples Republic of China. The contract
covers the period November 15, 1996 to February 15,
1998 (a total of 27 months) for the supply
principally of Omega-3 oil capsules under the
Company's brand -Mother Nature. The initial order
is for approximately $1,600,000 which is scheduled
to be shipped in December 1996. The agreement
provides for a minimum purchase of $3,750,000 for
the first 15 months of the agreement.
6. Stockholders' Equity Stock Split
On August 14, 1996, the Company's Board
of Directors approved a two-for-one split of the
common stock. The additional shares resulting from
the stock split were distributed on September 23,
1996, to all stockholders of record at the close of
business on August 26, 1996. The consolidated
balance sheet as of September 30, 1996 and the
consolidated statement of stockholders' equity for
the three months ended September 30, 1996 reflect
the recording of the stock split as if it had
occurred on January 1, 1996. Further, all
references in the consolidated financial statements
to average number of shares outstanding and related
prices, per share amounts and stock option data
have been restated for all periods to reflect the
stock split.
9
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - INFORMATION
AS OF SEPTEMBER 30, 1996 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
7. Related Party
Transactions In January 1996, the Company acquired assets
consisting of inventories, receivables, plant and
equipment from Collage in consideration of the
issuance of 448,148 shares of common stock. In June
1996, Collage agreed to transfer 238,662 of such
shares to the Company in consideration of the
Company's assumption of payment of certain trade
payables of Collage totalling approximately
$479,825 which has been classified as treasury
stock at June 30, 1996. At September 30, 1996,
$27,980 of such payables are classified as
long-term since certain vendors have agreed to
accept payment from the proceeds of sale of the
treasury shares. In addition, in July 1996, Collage
pledged the balance (185,338) of its shares of the
Company's common stock as security for monies owed
by Collage to the Company for purchases of goods
totalling $488,548. The $488,548 receivable from
Collage, a stockholder, has been classified as a
reduction of stockholders' equity at June 30, 1996.
Under the agreement the Company is entitled to 1/7
of the 185,338 shares pledged each month commencing
September 1996, for each month in which Collage
fails to pay the Company for the indebtedness.
Collage failed to pay the Company in September and
October and, accordingly, the Company is entitled
to 52,954 of such shares to date which have been
classified as treasury stock as of September 30,
1996. In addition, the allocable portion of the
receivable from Collage has been reclassified to
treasury stock.
The accompanying consolidated statement of
operations for the three months ended September 30,
1996 does not include any compensation to the
Company's Chief Executive Officer since the Company
did not pay and it did not accrue any compensation
to him since it was not obligated to do so. An
employment agreement for the period subsequent to
September 30, 1996 is currently being negotiated.
Statements of Cash Flows Supplemental Disclosures of Cash Flow Information:
-------------------------------------------------
Cash paid during the three months ended September
30, 1996 for:
Interest $19,500
Taxes -
10
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - INFORMATION
AS OF SEPTEMBER 30, 1996 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Capital lease obligations of $161,879 were incurred
for equipment during the three months ending
September 30, 1996.
During the quarter ended September 30, 1996 the
Company issued 170,200 shares pursuant to
conversion of debt in the amount of $370,700 and
issued 165,826 shares pursuant to the exercise of
warrants for services rendered in the quarter
($23,200) and services to be rendered in later
quarters ($92,800).
11
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - INFORMATION
AS OF SEPTEMBER 30, 1996 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Effective January 1, 1996 the Company acquired certain assets of
Collage in a transaction accounted for as a reverse acquisition. The following
discussion and analysis of financial condition and results of operations are
for the three month period ending September 30, 1996 (post acquisition)
compared to the three month period ending September 30, 1995 (pre-acquisition).
<TABLE>
<CAPTION>
(dollars in thousands) Three months ending Three months ending
September 30, 1996 September 30, 1995
(Unaudited) (Unaudited)
-------------------------------------------
<S> <C> <C>
Sales $ 1,187 $ 728
Cost of Sales 510 239
------- --------
Gross Profit 677 489
Operating Expenses 600 400
------- --------
Operating Income 77 89
Other Income/(Expense) 12 (3)
------- --------
Net Income Before Taxes 89 86
Income Taxes 32 30
------- --------
Net Income $ 57 $ 56
======= ========
</TABLE>
Results of Operations
Operating revenues increased by approximately $459,000 (62.9%)
for the three months ended September 30, 1996 as compared to the same period
ended September 30, 1995. The increase in sales was primarily to sales to
additional customers, in particular Korean Airlines, as a result of increased
sales and marketing efforts.
The net increase in gross margin of approximately $188,000 resulted
from an increase in gross margin from additional sales of approximately $262,000
offset by a reduction in gross margin percentage of approximately $74,000. The
reduction in the gross margin percentage was due to the pricing strategies
utilized to increase sales volume to new customers. The Company anticipates
sustaining the gross margin for the three months ending September 30, 1996 as
the Company grows in revenues.
Operating expenses increased by approximately $200,000 due primarily
to an increase in sales and marketing expenses to support additional sales and
marketing efforts to generate sales.
12
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - INFORMATION
AS OF SEPTEMBER 30, 1996 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
Other income and expenses increased by approximately $15,000
primarily due to an increase in income from export grants.
Liquidity and Capital Resources
The Company's working capital increased by $152,000 from June 30,
1996 to September 30, 1996 primarily due to an increase in current assets of
approximately $592,000 offset by an increase in current liabilities of
approximately $271,000.
The increase in current assets consisted primarily of an increase in
accounts receivable by approximately $283,000 and an increase in inventory of
$350,000 offset by a reduction in cash of $110,000. The increase in current
liabilities were primarily due to an increase in accounts payable by
approximately $271,000, a decrease in loans to related parties by $257,000
(principally as a result of converting of a $300,000 stockholder loan, net of
additional advances of $46,000). In addition, the Company received loans of
$300,000 for the three months ended September 30, 1996.
Accounts payable, long-term was reduced by $70,700 due to a vendor
accepting the Company's stock in payment.
13
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
Part II. Other Information
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securityholders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports to Form 8-K
(a) Exhibits
Exhibit 1. Distributorship Agreement between Collage
International Health Pty and C.B. & P. Pty Ltd
(b) Reports on Form 8-K - None
14
<PAGE>
ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Essential Resources, Inc. December 12, 1996
- -------------------------
Registrant
By: /s/ Phillip G. Cook
-------------------
Phillip G. Cook
President, Chief Executive
Officer, Chief Financial
Officer and Chairman of the
Board and a Director (Principal
Executive and Financial Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE AUDITED FINANCIAL
STATEMENTS OF ESSENTIAL RESOURCES, INC. FOR THE QUARTER ENDED SEPTEMBER 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 107,771
<SECURITIES> 0
<RECEIVABLES> 431,094
<ALLOWANCES> 0
<INVENTORY> 681,183
<CURRENT-ASSETS> 106,012
<PP&E> 311,605
<DEPRECIATION> 25,286
<TOTAL-ASSETS> 2,546,692
<CURRENT-LIABILITIES> 1,664,310
<BONDS> 600,386
0
0
<COMMON> 2,855
<OTHER-SE> 718,699
<TOTAL-LIABILITY-AND-EQUITY> 2,546,692
<SALES> 1,187,542
<TOTAL-REVENUES> 1,187,542
<CGS> 509,877
<TOTAL-COSTS> 600,179
<OTHER-EXPENSES> 12,030
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 89,516
<INCOME-TAX> 32,000
<INCOME-CONTINUING> 57,516
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,516
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
<FN>
The schedule contains summary financial information extracted from the
consolidated financial statements of Essential Resources, Inc. and Subsidiaries
and is qualified in its entirety by reference to such financial statements.
</TABLE>
<PAGE>
DISTRIBUTORSHIP
AGREEMENT
BETWEEN
COLLAGE INTERNATIONAL HEALTH PTY LTD
AND
C.B. & P. PTY LTD
DATED
NOVEMBER 15, 1996
<PAGE>
DISTRIBUTORSHIP AGREEMENT
This Agreement dated November 15, 1996
BETWEEN: COLLAGE INTERNATIONAL HEALTH PTY LIMITED
ACN 072 383 101
Of Building 4, 43-45 Egerton Street, Silverwater NSW 2128
AND: C.B. & P. PTY LIMITED
ACN 055 581 229
of: 458-468 Wattle Street, Ultimo NSW 2000
THE PARTIES AGREE AS FOLLOWS:
1. Definitions
In this Agreement except where the context otherwise requires, the
following terms and expressions shall be understood to have the
precise meaning as follows:
1.1 Contract Products shall mean the Collage International Health Pty Ltd
supplied products bearing the Trademark as set out in Appendix A to
this Agreement.
1.2 Collage International Health Pty Ltd reserves the right to modify the
design and/or type of the Contract Products or parts thereof or may
discontinue any Contract products in its sole discretion.
1.3 "Territory" shall mean People's Republic of China. C.B. & P Pty Ltd
shall not sell the Contract Products to areas other than to the
People's Republic of China without the prior written consent of Collage
International Health Pty Ltd, nor shall C.B. & P. Pty Ltd sell to
Contract Products to persons or businesses that may resell them outside
the Territory. The parties may reconsider the Contract Products or the
Territory.
2. Appointment and Acceptance
2.1 During the term and subject to the conditions hereinafter set forth,
Collage International Health Pty Ltd hereby appoints C.B. & P. Pty Ltd
as its exclusive distributor for the Contract Products in the
Territory, and C.B. & P. Ltd accepts such appointment. During the term
of this Agreement Collage International Health Pty Ltd agrees not to
sell the Contract Products, either directly or indirectly, into the
Territory except as outlined in Clause 2.2.
2.2 During the term of this Agreement, Collage International Health Pty
Ltd may, either directly or indirectly, supply Products within the
duty free market in the Territory with the exception of the Contract
Products as set out in Appendix A of this Agreement.
<PAGE>
2.3 C.B. & P. Pty Ltd shall not be concerned or interested either directly
or indirectly in the manufacture, production, importation, sale,
purchase, exportation, distribution, or advertisement of any goods in
the Territory which are like or similar to or which, either alone or in
conjunction with some other product, perform, or are designed to
perform, the same or a similar function to, or which might otherwise
compete or interfere with the sale of any of the Contract Products
during the term of this Agreement and for a period of twelve (12)
months after the expiry of this Agreement. The parties agree that if
C.B. & P. Pty Ltd breaches the provisions of this Sub-clause it will be
liable to pay to Collage International Health Pty Ltd the liquidated
and ascertained sum of USD2,064,000 which the parties acknowledge
represents a genuine pre-estimate of the loss likely to be suffered by
Collage International Health Pty Ltd including, but not limited to,
loss in connection with termination of this Agreement, the appointment
of a new distributor and the loss of sales of the Contract Products in
the interim period.
3. Orders and Shipments
3.1 All orders are to be placed by Sales Contract as set out in Appendix B
attached and are subject to the terms and conditions contained
therein.
3.2 In placing orders with Collage International Health Pty Ltd C.B. & P.
Pty Ltd shall clearly describe the Contract Products and quantity
required in writing, and shall include precise instructions for
packaging, invoicing and shipping. The orders shall not be binding
unless and until they are accepted by Collate International Health Pty
Ltd agrees to supply C.B. & P. Pty Ltd with Contract Products to
enable fulfillment of the minimum purchases as set forth in Clause 5
herein.
3.3 Collage International Health Pty Ltd shall use its best endeavors
consistent with its other demands and business to meet orders placed by
C.B. & P. Pty Ltd. Collage International Health Pty Ltd guarantees to
fulfill all orders placed by C.B. & P. Pty Ltd and accepted by Collage
International Health Pty Ltd under Clause 3.1 and Clause 3.2 above.
However in the event of any strikes, lockouts, fire, explosion or
accident, natural disaster, or of any stoppage of business or work
beyond the control of Collage International Health Pty Ltd which may
prevent or hinder Collage International Health Pty Ltd in fulfilling
orders placed by C.B. & P. Pty Ltd, Collage International Health Pty
Ltd may suspend or postpone the delivery of the Contract Products.
C.B. & P. Pty Ltd recognizes that this does not constitute a breach of
the provisions of this Agreement.
4. Price and Payment
4.1 The prices of the Contract Products, as set out in Appendix A of this
Agreement, are set for a period of fifteen (15) months. Sixty (60) days
prior to the expiry of this Agreement the parties agree to enter into
good faith price negotiations to determine the prices of the Contract
Products for the next contract year, or agreed to contract term.
4.2 Within thirty (30) days prior to the shipment date as outlined in
Collage International Health Pty Ltd's confirmation of order, C.B. & P
Pty Ltd shall open an irrevocable
<PAGE>
Letter of Credit "45 days from sight" in favor of Collage
International Health Pty Ltd, issued by a first class international
bank satisfactory to Collage International Health Pty Ltd.
4.3 Currency of payment shall be in United States Dollars.
4.4 C.B. & P. Pty Ltd shall be liable for and shall pay any tax imposed
upon Collage International Health Pty Ltd or C.B. & P. Pty Ltd by the
laws of the jurisdiction of the Territory.
5. Minimum Purchase
5.1 C.B. & P. Pty Ltd shall guarantee a minimum purchase of the Contract
Products from Collage International Health Pty Ltd in the following
amount:
(a) First Contract Period
USD$3,750,000.00 per period.
(b) Second Contract Period
To Be Negotiated
(c) Third Contract Period
To Be Negotiated
5.2 For the purpose of this Clause, the Contract Products shall be
considered to be purchased when shipped by Collage International
Health Pty Ltd, excluding any sales returned to Collage International
Health Pty Ltd.
6. Inspection and Warranty
6.1 C.B. & P. Pty Ltd shall inspect or shall cause its qualified agent to
inspect the Contract Products in Sydney at .B. & P. Pty Ltd's cost
prior to shipments, to ensure that the quality standards have been met
as agreed to in writing by the parties. If, upon receipt of the
Contract Products they are found not to be in compliance with the
quality standards, Collage International Health Pty Ltd shall replace
the Contract Products or the part of a Contract Product not meeting
the quality standards.
6.2 Collage International Health Pty Ltd warrants that the Contact
Products shall be free from defects in material and workmanship. This
warranty does not extend to any of the said Contract Products that
have been
- subjected to misuse, neglect, accident or abuse,
- altered or modified in any way
<PAGE>
- used or stored in violation of instructions furnished by
Collage International Health Pty Ltd.
6.3 Claims by C.B. & P. Pty Ltd in regard to any defect in the Contract
Products shall be in writing and be dispatched by C.B. & P. Pty Ltd
with full particulars within fourteen (14) days after the receipt of
the Contract Products in the Territory.
7. Distributor's Responsibility
7.1 C.B. & P. Pty Ltd shall maintain adequate stocks of the Contracts
Products throughout the Territory to meet its customer's demand in
time. C.B. & P. Pty Ltd shall maintain adequate stocks of facilities
and qualified personnel throughout the Territory and shall provide
reasonable After-Sales Service to its customers.
7.2 C.B. & P. Pty Ltd shall arrange, advertisement and sales promotion of
the Contract Products and devote its best efforts toward obtaining the
largest sales volume of the Contract Products in the Territory.
7.3 C.B. & P. Pty Ltd agrees to arrange agreed advertising and promotional
activities of the Contract Products in the Territory with such
expenditure to e not less than RMB3,000,000.00 within the first twelve
(12) months of the date of execution of this Agreement.
7.4 Whenever Collage International Health Pty Ltd shall indicate to C.B. &
P. Pty Ltd any complaint concerning the activities of C.B. & P. Pty
Ltd hereunder C.B. & P. Pty Ltd shall immediately make investigation
and take proper action to remedy the complain.
8. Request for Information
C.B. & P. Pty Ltd shall cooperate with Collage International Health
Pty Ltd's request to supply information on the sale of the Contract
Products, the inventory of the Contract Products, conditions relating
to advertising, promotion and the provision of After-Sales Service,
general market conditions and other information as may be requested
from time to time.
9. Trademark
9.1 During the term of this Agreement, Collage International Health Pty
Ltd hereby grants to C.B. & P. Pty Ltd, a non-exclusive license to use
the Trademark (whether or not registered in the Territory by Collage
International Health Pty Ltd) for the purpose of sales and promotion
within the Territory. When C.B. & P. Pty Ltd uses the Trademark, it
shall indicate clearly that the Trademark is registered in the name of
Collage International Health Pty Ltd.
9.2 When C.B. & P. Pty Ltd intends to use the Trademark under Paragraph 9.1
above, prior to use, C.B. & P. Pty Ltd shall inform Collage
International Health Pty Ltd of the
<PAGE>
manner of such use and submit a sample of the materials (catalogues,
leaflets, posters, newspapers) bearing the Trademark for inspection
and approval by Collage International Health Pty Ltd. When C.B. & P.
Pty Ltd wishes to change the approved use of the Trademark, prior to
change, C.B. & P. Pty Ltd shall inform Collage International Health
Pty Ltd of the desired change and submit a sample of the materials
bearing the altered use of the Trademark for inspection and approval
by Collage International Health Pty Ltd. In any event the manner of
use of the Trademark or any change thereof shall be subject to Collage
International Health Pty Ltd's approval and C.B. & P. Pty Ltd shall
not use the Trademark in any other manner than that approved in
advance by Collage International Health Pty Ltd.
9.3 C.B. & P. Pty Ltd recognizes that any of the Trademark, trade names,
designs, copyrights and other proprietary rights, used on or embodied
in the Contract Products ("Proprietary Rights") shall remain the
exclusive property of Collage International Health Pty Ltd. C.B. & P.
Pty Ltd shall not have or acquire any right, title or interest in
Proprietary Rights.
9.4 During the terms of this Agreement or even after termination, C.B. & P.
Pty Ltd shall not:
(i) Use the Trademark or similar trademarks on any other
companies products than Collage International Health Pty
Ltd's nor let other companies use the Trademark.
(ii) Directly nor indirectly apply for the registration of
the Trademark or any other trademarks similar thereto with
respect to the Contract Products or any other materials in
any country of the world.
9.5 C.B. & P. Pty Ltd shall not directly or indirectly apply for the
registration of any tradename or business name including the words
"Mother Nature" or "M&N" or its translation into any language.
9.6 C.B. & P. Pty Ltd may, with the prior written consent of Collage
International Health Pty Ltd, indicate that it is an authorized
distributor of the Contract Products.
9.7 When C.B. & P. Pty Ltd finds that a third party infringes or impairs
the Trademark or Collage International Health Pty Ltd's or Mother
Nature's goodwill involved therein, or when a third party brings a
claim, suit or action against Collage International Health Pty Ltd or
C.B. & P. Pty Ltd on the grounds that C.B. & P. Pty Ltd's use of the
Trademark may infringe on the third party's rights, C.B. & P. Pty Ltd
shall promptly inform Collage International Health Pty Ltd thereof and
cooperate with Collage International Health Pty Ltd to settle the
problem.
9.8 Upon termination of this Agreement for any cause, C.B. & P. Pty Ltd
shall cease holding itself out as a distributor of the Contract
Products and cease using, in any way, Collage International Health Pty
Ltd's name, or its Proprietary Rights or any material
<PAGE>
similar thereto.
9.9 Collage International Health Pty Ltd, at its discretion, shall have the
right to record the existence of the license hereunder, or require C.B.
7 P. Pty Ltd to register as a registered user in the Territory at C.B.
& P. Pty Ltd's expense.
9.10 C.B. & P. Pty Ltd shall not alter, deface, remove, cover or mutilate
in any manner the Trademark, batch number or expiry date, brand, or
Collage International Health Pty Ltd's name attached of affixed to any
of the Contract Products, without the prior written consent of Collage
International Health Pty Ltd.
10. Status of Distributor
10.1 This Agreement does not in any way create the relationship of principal
and agent between Collage International Health Pty Ltd and C.B. & P.
Pty Ltd and under no circumstances shall C.B. & P. Pty Ltd be
considered to be the agent of Collage International Health Pty Ltd. C.
B. & P. Pty Ltd shall not act or attempt to act, or represent itself,
directly or by implication, as an agent of Collage International Health
Pty Ltd or in any manner assume or create, or attempt to assume or
create any obligation, liability, representation, warranty or guarantee
on behalf of, or in the name of Collage International Health Pty Ltd.
10.2 C.B. & P. Pty Ltd shall, at all times, comply with all applicable laws,
regulations, and orders of any government of the Territory or political
subdivisions thereof, relating to or in any way affecting this
Agreement and C.B. & P. Pty Ltd's performance hereunder, including the
obtaining of any required licenses, permits or approvals.
10.3 C.B. & P. Pty Ltd shall not disclose to any third party, without the
prior written consent of Collage International Health Pty Ltd, or use
for any purpose other than the performance of its obligations under
this Agreement, any confidential information concerning the Contract
Products or business affairs of Collage International Health Pty Ltd
(including, but not limited to, prices, discounts, terms and conditions
of sale, customer,s business affairs, Contract Products or Contract
Product specifications) which it receives directly or indirectly form
Collage International Health Pty Ltd, or which it acquires or develops
in the course of its transactions with Collage International Health Pty
Ltd.
11. Term
11.1 This Agreement shall become effective upon signing, and shall continue
in full force and effect for a period of fifteen (15) months from the
date hereof, unless earlier terminated pursuant to Clause 12, and
shall thereafter be automatically extended for one (1) year, unless
three (3) month prior to the expiration of the term or any extension
thereof, a notice of intention to finally terminate is given in
writing by one party to the other.
11.2 Upon the extension of this Agreement in accordance with Paragraph 11.1,
the minimum
<PAGE>
purchase amount for each period shall be reviewed and a new minimum
purchase shall be mutually agreed upon in writing by the parties
within thirty (30) days before commencement of each new period.
12. Termination
12.1 This Agreement may be terminated, at the option of either party, by
giving to either party thirty (30) days written notice of its
intention so to terminate in each case of the following events:
(a) Should either party become bankrupt or insolvent, or have its
business placed in the hand of a receiver, assignee or trustee,
whether by voluntary act or otherwise;
(b) Should either party fail to meet promptly any of its obligations
pursuant to this Agreement and that failure has not been rectified
within thirty (30) days subsequent to the receipt of written notice of
such failure;
(c) Should C.B. & P. Pty Ltd be acquired by, or should itself acquire,
in whole or in part, a manufacturer of products which in the reasonable
judgement of Collage International Health Pty Ltd competes to a
material extent with the Contract Products;
(d) Should C.B. & P. Pty Ltd attempt to assign this Agreement or any
rights hereunder to a third party without Collage International Health
Pty Ltd's prior written consent; or
(e) If either party cease to function as a going concern or t conduct
its operations in the normal course of business.
12.2 In the case where C.B. & P. Pty Ltd fails to achieve the minimum
purchase target as set out in Clause 5 herein, for any reason unless
solely and apparently attributable to Collage International Health Pty
Ltd, Collage International Health Pty Ltd is entitled to terminate
this Agreement and in such case Collage International Health Pty Ltd
may, i it wishes, sell the Contract Products directly or indirectly to
any third party in the Territory.
12.3 All payments owed to Collage International Health Pty Ltd upon
termination shall become immediately due and payable and no
cancellation or termination of this Agreement shall serve to release
either party or its successors or assigns from any obligations under
this Agreement.
12.4 In case of termination of this Agreement by either party for any
reason, Collage International Health Pty Ltd may at is sole option
repurchase from C.B. & P. Pty Ltd at the net price paid by C.B. & P.
Pty Ltd to Collage International Health Pty Ltd any or all of the
Contract Products or part thereof in the possession of C.B. & P. Pty
Ltd.
13. Indemnities
13.1 Except as may otherwise be provided herein, upon expiration or
termination of this
<PAGE>
Agreement, neither party shall be required to pay any indemnity to the
other for any loss of profit, goodwill, creation of clientele nor
other like items, advertising costs, costs of samples, termination of
employees, employees' salaries, or the like. Collage International
Health Pty Ltd shall be free, as of the date of expiration or
termination of this Agreement, to appoint another exclusive
distributor for the Contract products in the Territory.
13.2 If for any reason apparently attributable to Collage International
Health Pty Ltd this Agreement is terminated pursuant to Clause 12.1
C.B & P. Pty Ltd shall be freed from the provisions of Clause 2.3 from
the date of termination.
14. Governing Law
14.1 This Agreement shall be interpreted and governed by the laws of the
Commonwealth of Australia and the State of New South Wales.
14.2 If any action or arbitration or other proceeding shall be commenced to
enforce this Agreement, the prevailing party in such action or
proceeding shall be entitled to recover from the other party
reasonable attorney's fees, arbitration costs and out-of-pocket
expenses incurred by such prevailing party in connection with such
action or proceeding.
15. Miscellaneous Provisions
15.1 Any notice required or permitted to be given hereunder shall be in
writing, and may be given by personal service, registered airmail,
with postage prepaid to the following addresses:
To Collage International Health Pty Ltd at:
Collage International Health Pty Ltd
Building 4, 43-45 Egerton Street
Silverwater NSW 219 Australia
To C.B. & P. Pty Ltd at:
C.B. & P. Pty Limited
458-468 Wattle Street
Ultimo NSW 2007 Australia
15.2 This Agreement constitutes the entire understanding of Collage
International Health Pty Ltd and C.B. & P. Pty Ltd with respect to the
subject matter hereof. No amendment, modification or alteration of any
term of this Agreement shall be binding on either party unless the
same shall be made in writing, dated subsequent to the date hereof and
executed by or on behalf of the parties hereto.
15.3 Neither party may assign its rights under this Agreement without the
written consent of
<PAGE>
the other party, such written consent will not be unreasonably
withheld by either party.
15.4 All waivers hereunder shall be in writing, and the failure of any
party at any time to require the other party's performance of any
obligations under this Agreement shall not affect the right
subsequently to require performance of the obligation. Any waiver of
any breach of any provision of this Agreement shall not be construed
as a waiver of any continuing or succeeding breach of such provision
or a waiver or modification of the provision.
15.5 If any one or more of the provisions contained in this Agreement shall
be declared invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected
or impaired, and in such case the parties hereto oblige themselves to
reach the purpose of the invalid provision by a new, valid and legal
stipulation.
15.6 The section headings herein are included for purposes of convenience
only and shall not affect the construction or interpretation of any of
the provision or this Agreement.
15.7 For the purposes of communication, this Agreement may be translated
into another language, but this Agreement, which is executed in the
English language, shall be the only binding version.
15.8 This Agreement becomes effective on signing subject to C.B. & P. Pty
Ltd obtaining government import approvals to import the Contract
Products into the Territory. Both parties recognize that two (2)
months is a reasonable period for this to occur and Collage
International Health Pty Ltd reserves the right to withdraw this
Agreement if C.B. & P have not obtained government import approvals in
this time frame.
<PAGE>
EXECUTED AS AN AGREEMENT
Signed for and on behalf of
Collage International Health Pty Ltd by
Mr. Tom Gaines - Managing Director
- ----------------------------------
Signed by
- ----------------------------------
Witness
Signed for and on behalf of
C.B. & P. Pty Limited by
Bill B. Z. Gao - Managing Director
- ----------------------------------
Signed by
- ----------------------------------
Witness
