U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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{} TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________to________________
Commission File Number: 0-27833
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INTERNATIONAL COSMETICS MARKETING CO.
(Exact name of small business issuer as specified in its charter)
Florida 65-0598868
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(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
6501 N.W. Park of Commerce Boulevard, Suite 205, Boca Raton, Florida 33487
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(Address of Principal executive offices)
Issuer's telephone number, including area code: (561) 999-8878
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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
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 4,766,730 shares as of March
31, 2000.
INTERNATIONAL COSMETICS MARKETING CO.
Form 10-QSB for the quarter ended March 31, 2000
TABLE OF CONTENTS AND INFORMATION REQUIRED IN REPORT
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Page
Part I. Financial Information
Item 1. Financial Statements
Unaudited Balance Sheet 3
Unaudited Statements of Cash Flows 4
Unaudited Statements of Operations 5
Unaudited Statements of Changes in Stockholders' Equity (Deficit) 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II: Other Information
Item 1 Legal Proceedings 11
Item 2 Changes in Securities and Use of Proceeds 11
Item 3 Defaults upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 12
2
Part 1. Financial Information
Item 1. Financial Statements
International Cosmetics Marketing Co.
Unaudited
Balance Sheet
March 31,
2000
ASSETS
Current Assets:
Cash $ 21,503
Receivables - credit cards and bank drafts 61,232
Inventory - finished goods 746,663
Deposits for inventory purchases 224,888
Prepaid expenses 27,082
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Total current assets 1,081,368
Office furniture and equipment, net 96,770
License agreement, net 214,388
Deposits 128,274
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Total assets $ 1,520,800
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued liabilities $ 567,965
8% demand note payable 40,000
Payable to licensor 37,500
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Total current liabilities 645,465
0% convertible debentures 2,000,000
Commitments and contingencies
Stockholders' Equity (Deficit):
Common stock, par value $.001 per share, 25,000,000
shares authorized; 4,766,730 shares issued and
and outstanding 4,766
Additional paid-in capital 82,950
Accumulated deficit (1,212,381)
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Total stockholders' equity (deficit) (1,124,665)
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Total liabilities and stockholders' equity (deficit) $ 1,520,800
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See the accompanying notes to these financial statements.
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International Cosmetics Marketing Co.
Unaudited
Statements of Cash Flows
Three Months Three Months
Ended Ended
March 31, March 31,
2000 1999
Cash Flows From Operating Activities:
Net loss $(842,214) $ (150)
Adjustments to reconcile net loss to net cash used
in operations:
Depreciation expense 4,500 --
License amortization expense 3,477 --
Consulting expenses 2,083 --
Distributor expenses - stock issued 36,650
Changes in operating assets and liabilities:
Receivables from credit cards and bank drafts 83,607 --
Inventory - finished goods (443,437) --
Deposits for inventory purchases 149,868 --
Prepaid expenses 5,062 --
Accounts payable and accrued liabilities 338,245 --
8% demand note payable 40,000
Payable to licensor (37,502) --
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Net cash used in operating activities (659,661) (150)
Cash Flows From Investing Activities:
Purchase of office furniture and equipment (40,907) --
Deposits for services (46,535) --
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Net cash used in investing activities (87,442) --
Cash Flows from Financing Activities:
Issuance of convertible debentures 450,000 --
Sale of common stock -- 8
Additional paid-In capital -- 352
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Net cash provided by financing activities 450,000 360
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Net increase in cash (297,103) 210
Cash, beginning of period 318,606 240
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Cash, end of period $ 21,503 $ 450
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Supplemental Disclosure of Noncash Investing and Financing Activities:
18,800 shares of stock cancelled at par value on January 7, 2000
7,330 shares of stock issued to founding distributors at $5.00 per share on
March 31, 2000
See the accompanying notes to these financial statements.
4
International Cosmetics Marketing Co.
Unaudited
Statement of Operations
Three Months Three Months
Ended Ended
March 31, March 31,
2000 1999
Net sales $ 747,697 $ --
Cost of sales 441,427 --
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Gross profit 306,270 --
Operating expenses:
Commissions 171,709 --
Royalty 75,000 --
Distributor events 181,423
Selling, general and administrative 720,352 150
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Total operating expenses 1,148,484 150
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Operating loss (842,214) (150)
Provision for income taxes -- --
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Net loss $ (842,214) $ (150)
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Net loss per share:
Basic $ (0.18) $ (0.00)
Diluted $ -- $ --
Weighted average common shares outstanding:
Basic 4,760,720 7,450,000
Diluted 10,020,303 7,450,000
See the accompanying notes to these financial statements.
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International Cosmetics Marketing Co.
Unaudited
Statement of Changes in Stockholder's Equity (Deficit)
Additional Total
Common Paid-in Accumulated Stockholders'
Shares Stock Capital Deficit Equity (Deficit)
Balances at December 31, 1999 4,778,200 $ 4,778 $ 46,288 $ (370,167) $ (319,101)
Cancellation of shares
at par value (18,800) (19) 19 --
Stock issued to distributors 7,330 7 36,643 36,650
Net Loss (842,214) (842,214)
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Balances at March 31, 2000 4,766,730 $ 4,766 $ 82,950 $(1,212,381) $(1,124,665)
=========== =========== =========== =========== ===========
Balances at Decembeer 31, 1998 7,441,600 7,442 764 (7,966) 240
Stock issued 8,400 8 352 360
Net Loss (150) (150)
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Balances at March 31, 1999 7,450,000 $ 7,450 $ 1,116 $ (8,116) $ 450
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See the accompanying notes to these financial statements.
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International Cosmetics Marketing Co.
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Nature of Operations
International Cosmetics Marketing Co. (the Company), d/b/a Beverly Sassoon &
Co., began business upon entering into an agreement in August, 1999 with Beverly
Sassoon International, L.C.C., Beverly Sassoon and Elan Sassoon which grants the
Company various rights related to the manufacturing, marketing and distribution
of products utilizing the "Beverly Sassoon" and "Elan Sassoon" names. The
Company commenced operations in late 1999. The Company seeks to distribute a
variety of products which have a wide range of appeal in areas from skin care
and cosmetics to nutritional supplements and human wellness products to apparel
and other consumer products. In order to build a database from which the Company
might select products to market and distribute, the Company anticipates that it
will solicit proposals from inventors who have substantially completed their
product development but lack the expertise or capital to market or distribute
it. The Company may also acquire existing businesses with complimentary
operations as a method of expanding its business and operations and leverage its
brand name with licensing agreements. The Company may develop its own products
in the future.
Currently, the Company markets its products using a network marketing
distribution and sales model. The subsistence of the Company is dependent upon
sufficient proceeds being raised through financing or capital contributions and
increasing and profitable operations. The Company's operations are currently
limited to the United States.
Basis of Presentation
The Company prepares its financial statements on the accrual basis of
accounting, recognizing income when earned and expenses when incurred. The
accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB. 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, the
accompanying financial statements contain all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair statement of the
Company's financial information as of March 31, 2000 and 1999 and for the
three-month periods ended March 31, 2000 and 1999. The results of operations of
any interim period are not necessarily indicative of the results of operations
to be expected for the fiscal year.
Financial Statement Estimates
The preparation of financial statements in conformity with Generally Accepted
Accounting Principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Inventory
Inventory is stated at cost using the average cost method.
Office Furniture and Equipment
Office furniture and equipment are stated at cost. Depreciation is calculated
based on estimated useful lives of the assets ranging from three to five years.
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International Cosmetics Marketing Co.
Notes to Financial Statements--(Continued)
License Amortization
The exclusive license agreement is being amortized over sixteen years.
Revenue
Sales are recognized as revenue at the time products are shipped.
Income Taxes
Deferred tax assets and liabilities are determined based upon differences
between financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which differences are expected to
reverse. The Company has not recognized any benefit for its net operating loss
through March 31, 2000 in the accompanying financial statements as the
realization of this deferred tax benefit is not more likely than not. A 100%
valuation allowance has been recognized to offset the entire effect of the
Company' net deferred tax assets.
Loss Per Share
Basic net income (loss) per common share is computed by dividing net income
(loss) available to common stockholders for the period. Diluted income per
common share reflects the maximum dilution that would have resulted from the
assumed exercise related to dilutive securities and is computed by dividing net
income by the weighted average number of common shares and all dilutive
securities outstanding.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
2000 compared to 1999
Net sales increased to $747,697 from zero for the three-month compared with
the same period in 1999. The increase in net sales resulted primarily from the
Company commencing operations in the fall of 1999.
Gross profit as a percentage of net sales was 41% for the three-month,
compared to zero for the same period in 1999. The increase in gross profit
resulted primarily from the Company commencing operations in the fall of 1999.
Commissions earned by distributors of the Company's products as a
percentage of net sales was 23% for the three-months ended March 31, 2000,
compared to zero for the same period in 1999. The increase in commissions
resulted primarily from the Company commencing operations in the fall of 1999.
Commissions are earned by the Company's independent business associates based on
group volume. Group volume is a value assigned by the Company to its products
for the purpose of determining commissions to its independent business
associates. Commissions expense was 34% of group volume for the quarter ended
March 31, 2000.
Royalty expense increased $75,000 for the three-month period ended March
31, 2000, compared with the same period in 1999. The increase in royalty expense
resulted from the Company entering into an exclusive license agreement in
August, 1999.
Distributor events expense, as a percentage of net sales was 24% for the
three-month period ended March 31, 2000, compared to zero for the same period in
1999. The increase in distributor event expense resulted primarily from the
Company holding a national convention for its independent business associates in
March 2000.
Selling, general and administrative expenses as a percentage of net sales
was 96% for the three-month period ended March 31, 2000, compared to zero for
the same period in 1999. The increase in selling, general and administrative
expenses resulted primarily from the Company commencing operations in the fall
of 1999.
Net loss increased by $842,064 for the three-month period ended March 31,
2000 and decreased $20 for the same period in 1999 due to the Company commencing
operations in the fall of 1999. Net loss as a percentage of net sales was 113%
for the three-month period ended March 31, 2000 compared to zero for the same
period in 1999 due to the Company commencing operations in the fall of 1999.
8
Liquidity and Capital Resources
The Company's principal needs for funds have been for working capital
(principally inventory purchases), commissions, royalty expense, operating
expenses, capital expenditures, and the development of operations for the U.S.
market. The Company has generally relied on cash flow from the issuance of
convertible debentures and cash collected on sales that commenced in December
1999 to fund operating activities. The Board of Directors had previously
approved the issuance of convertible debentures in the principal amount not to
exceed $2,000,000 that may be sold from time to time by the Company to raise
start-up capital. As of March 31, 2000, the Company has issued convertible
debentures and received funding of $2,000,000, including $450,000 in the quarter
ended March 31, 2000. The Company needs additional funding in the quarter ending
June 30, 2000 to pay liabilities and to fund expected growth of the Company.
While no commitments have been received to provide additional funding, the
Company believes that it will be able to raise any additional funding that is
needed.
The Company is currently generating negative cash flow from operations
since it only had its first sales in December 1999 after commencing operations
in August 1999. The Company does not generally extend credit to distributors but
requires payment by credit card or bank draft prior to shipping of products.
This process eliminates the need for significant accounts receivable from
distributors. During the three-month period ended March 31, 2000, the Company
had negative cash flow from operations of $659,661. This negative cash flow from
operations primarily related to the Company's net loss, inventory, and reduction
of liability to licensor.
As of March 31, 2000, working capital was $435,903, compared to $128 as of
March 31, 1999. This increase is primarily due to funds from the issuance of
convertible debentures. Cash at March 31, 2000 and March 31, 1999 was $21,503
and $450, respectively.
Capital expenditures, primarily for office furniture and equipment were
$40,907 for the three-month period ended March 31, 2000. In addition, the
Company anticipates additional similar capital expenditures of $50,000 for the
remainder of the fiscal year to enhance its infrastructure, including computer
systems to accommodate anticipated future growth.
Expenditures for deposits for services, principally reserve for merchant
account to accept credit cards, was $46,535 for the three-month period ended
March 31, 2000. Except for deposits for inventory purchases and additions to the
reserve for merchant account to accept credit cards, no significant additional
deposits are anticipated for these items for the remainder of the fiscal year.
The Company leases office space under a non-cancelable operating lease
expiring October 31, 2004. Minimum future operating lease obligations at March
31, 2000 was $306,971, including $15,941 for the remainder of the fiscal year.
Seasonality and Cyclicality
In addition to general economic factors, the direct selling industry is
impacted by seasonal factors and trends such as major cultural events and
vacation patterns.
Note Regarding Forward-Looking Statements
Certain statements made above, including those in the Liquidity and Capital
Resources section, herein are "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements consist of
any statement other than a recitation of historical fact and be identified by
the use of forward-looking terminology such as "may," "expect," "anticipate,"
"estimate," or "continue" or the negative thereof or other variations thereon or
comparable terminology. The reader is cautioned that all forward-looking
statements are necessarily speculative and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward looking statements. The Company does not
have a policy of updating or revising forward-looking statements and thus it
should not be assumed that silence by its management over time means that actual
events are bearing out as estimated in such forward looking statements.
9
Part II Other Information
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
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PART II
OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities and Use of Proceeds
Information in response to the requirements of this Item is disclosed above, in
PART I, Item 2., under the Liquidity and Capital Resources section.
Item 3 Defaults upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
Current Report on Form 8-K. A Current Report on Form 8-K was filed on April 13,
2000 regarding the resignation of William Wirch as Chief Operating Officer and
Director as of March 31, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned as duly authorized.
International Cosmetics Marketing Co.
(Registrant)
/s/ Stephanie McAnly /s/ Sonny Spoden
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Stephanie McAnly Sonny Spoden
President Chief Financial Officer
Dated: May 12, 2000
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