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, 2003
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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 Congress Avenue, Suite 100, 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___
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. As of April 30, 2003, 8,491,579
shares of Common Stock are issued and outstanding.
INTERNATIONAL COSMETICS MARKETING CO.
CONDENSED BALANCE SHEETS
(UNAUDITED)
March
2003
-----------
ASSETS
Current Assets:
Cash $ 53,641
Inventory, net 42,532
-----------
Total current assets 96,173
Office furniture and equipment, net 50,123
Deposits 750
-----------
Total assets $ 147,046
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Demand notes payable to stockholder $ 780,000
Accounts payable 482,343
Payables to related parties 103,312
Accrued liabilities 35,312
-----------
Total current liabilities 1,400,967
Long Term liabilities:
Payable to supplier 67,532
Convertible debentures - stockholder --
Stockholders' deficiency:
Preferred stock, $.001 par value, $2.50 liquidation value, 5,000,000
shares authorized; 221,458 shares issued and outstanding 221
Common stock, $.001 par value, 25,000,000
shares authorized; 8,491,579 shares issued
and outstanding 8,491
Additional paid-in capital 6,894,416
Accumulated deficit (8,224,581)
-----------
Total stockholders' deficiency (1,321,453)
-----------
Total liabilities and stockholders' deficiency $ 147,046
===========
The accompanying notes are an integral part of these financial statements.
2
INTERNATIONAL COSMETICS MARKETING CO.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Nine Months Three Months Three Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net sales $ 225,941 $ 698,763 $ 46,387 $ --
Cost of sales 92,937 383,942 44,613 93,949
----------- ----------- ----------- -----------
Gross profit 133,004 314,821 1,774 (93,949)
Operating expenses:
Commissions -- 33,723 -- --
Royalty and other expense - licensors 204,700 208,250 68,250 68,250
Selling, general and administrative:
Stock options and warrants for services -- 6,459 -- --
Other 436,995 969,117 158,386 202,859
----------- ----------- ----------- -----------
Total operating expenses 641,695 1,217,549 226,636 271,109
----------- ----------- ----------- -----------
Operating loss (508,691) (902,728) (224,862) (365,058)
----------- ----------- ----------- -----------
Other income (expense):
Forgiveness of debt -- 6,690 -- --
Loss on disposal of fixed assets -- (4,765) -- (4,765)
Interest income 2 9,450 -- 1,124
Interest expense (340,538) (29,875) (14,500) (7,535)
----------- ----------- ----------- -----------
(340,536) (18,500) (14,500) (11,176)
----------- ----------- ----------- -----------
Loss before income taxes (849,227) (921,228) (239,362) (376,234)
Provision for income taxes -- -- -- --
Net loss (849,227) (921,228) (239,362) (376,234)
Discount attributable to the beneficial
conversion feature of preferred stock -- -- -- --
Net loss applicable to comon stock $ (849,227) $ (921,228) $ (239,362) $ (376,234)
----------- ----------- ----------- -----------
Net loss per share:
Basic $ (0.10) $ (0.14) $ (0.03) $ (0.05)
Diluted $ (0.10) $ (0.14) $ (0.03) $ (0.05)
Weighted average common shares outstanding:
Basic 8,491,579 6,512,664 8,491,579 6,933,313
Diluted 8,491,579 6,512,664 8,491,579 6,933,313
The accompanying notes are an integral part of these financial statements.
3
INTERNATIONAL COSMETICS MARKETING CO.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Nine Months
Ended Ended
March 31, March 31,
2003 2002
----------- -----------
Cash Flows From Operating Activities:
Net loss $ (849,227) $ (921,228)
Adjustments to reconcile net loss to net cash used
in operations:
Depreciation expense 26,990 22,500
Loss on disposal of equipment -- 4,765
License amortization expense -- 10,430
Provision for inventory obsolescence 31,255 93,949
Provision for uncollectible acccounts (35,671) 39,312
Interest expense - Warrants 303,600 --
Stock options and warrants for services -- 6,459
Changes in operating assets and liabilities:
Accounts receivable 36,997 (25,312)
Inventory 40,509 (285,657)
Deposits 17,165 80,135
Prepaid expenses and other current assets 15,542 6,686
Accounts payable 64,037 (152,817)
Payable to related parties 43,312 (173,743)
Accrued liabilities 22,497 19,012
Payable to supplier -- 67,532
----------- -----------
Net cash used in operating activities (282,994) (1,207,977)
Cash Flows From Investing Activities:
Deposit for services -- 40,000
Purchase of computer equipment -- (81,734)
----------- -----------
Net cash used in investing activities -- (41,734)
Cash Flows from Financing Activities:
Proceeds from issuance of notes payable to stockholder 280,000 --
Proceeds from issuance of common stock and warrants, net of issuance costs -- 1,410,376
----------- -----------
Net cash provided by financing activities 280,000 1,410,376
Net increase in cash (2,994) 160,665
Cash, beginning of period 56,635 89,586
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Cash, end of period $ 53,641 $ 250,251
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
INTERNATIONAL COSMETICS MARKETING CO.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Nine Months
Ended Ended
March 31, March 31,
2003 2002
----------- -----------
Supplemental disclosure of cash flow information:
Interest paid $ -- $ 32,480
Supplemental disclosure of noncash investing and financing
Activities for the nine months ended March 31, 2003:
None
Activities for the nine months ended March 31, 2002:
Options of certain licensors valued at $6,459
15,000 shares of common stock issued for legal services valued at $28,151
70,000 shares of common stock issued for conversion of debenture at $1.50
per share
The accompanying notes are an integral part of these financial statements.
5
INTERNATIONAL COSMETICS MARKETING CO.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Part I. Financial Information
ITEM 1. CONDENSED FINANCIAL STATEMENTS
International Cosmetics Marketing Co.
Notes to Condensed Financial Statements (Unaudited)
For the three and nine months ended March 31, 2003 and 2002
1. - BASIS OF PRESENTATION
- --------------------------
The accompanying unaudited financial statements, which are for interim periods,
do not include all disclosures provided in the annual financial statements.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These unaudited condensed financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB of
Item 310b of Regulation S-B. These unaudited financial statements should be read
in conjunction with the financial statements and the footnotes thereto contained
in the Annual Report on Form 10-KSB for the year ended June 30, 2002 of
International Cosmetics Marketing Co, (the "Company"), d/b/a Beverly Sassoon &
Co., as filed with the Securities and Exchange Commission.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (which are of a normal recurring nature) necessary for a
fair presentation of the financial statements. The results of operations for the
three and nine months ended March 31, 2003 are not necessarily indicative of the
results to be expected for the full year.
2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------
The Company prepares its financial statements on the accrual basis of
accounting, recognizing income when earned and expenses when incurred.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Estimates that are
particularly susceptible to change in the near term include reserves for excess
and obsolete inventory and sales returns and allowances.
6
Revenue Recognition
- -------------------
Throughout Fiscal 2001, and 2002, title and risk of the company's products
passed when the products were shipped. In the first quarter of fiscal 2003, the
Company entered into an agreement with ShopNBC. ShopNBC has the right to return
unsold products for a period of 30 days. Title and risk under this arrangement
passes after the 30-day period and the Company recognizes revenue at that time.
The Company's distributor in China pre-pays for products and has 90 days
following pre-payment to submit Purchase Orders for the Company's products. In
the event that the distributor does not submit Purchase Orders within the 90-day
period, the pre-payment is forfeited to the Company. Title to the product passes
at the time of shipment. Revenue is recognized upon shipment. Licensing fees
will be amortized over the life of the license.
Sales Returns and Allowances
- ----------------------------
Accruals for sales returns and allowances are based on industry experience and
the Company's experience to date.
Cash
- ----
Cash consists of demand deposits. At March 31, 2003 the Company had a cash
balance of $53,641.
Inventories
- -----------
Inventories are recorded at the lower of cost or market. Cost is determined by
the average method while market is determined by replacement cost for raw
materials and net realizable value for finished goods. Appropriate consideration
is given to deterioration, obsolescence and other factors in evaluating net
realizable value. As of March 31, 2003 net of the allowance of $578,622 for
obsolescence, the net realizable value of inventory was $42,532.
Property and Equipment
- ----------------------
Property and equipment are recorded on the basis of historical cost.
Depreciation of equipment is computed using the straight-line method over the
assets' estimated useful lives, ranging from 3 years to 5 years. Gain or loss on
disposition of assets is recognized currently. Repairs and maintenance are
charged to expense as incurred. Major replacements and betterments are
capitalized and depreciated over the remaining useful lives of the assets.
During the office relocation, which took place in September 2002 all of the
fixed assets, which were included on the books and records but were abandoned,
were fully written off.
Intangible Assets
- -----------------
Intangible assets include a license agreement that was acquired with cash and
common stock. The license agreement was being amortized on the straight-line
basis over 16 years. During the year ended June 30, 2002, the Company determined
that the license agreement was impaired and the balance of $183,099 was
completely written off.
7
Stock Based Compensation
- ------------------------
In December 2002, the Financial Accounting Standards Board issued Statement of
Financial Account Standards No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure. This Statement amends Statements No. 123 to provide
three alternative methods of transition for Statement No. 123's fair value
method of accounting for stock-based employee compensation for companies that
elect to adopt the provision of Statement No. 123. Statement No. 148 does not
require transition to the fair value accounting method of Statement No. 123. The
Company has elected to use the intrinsic value method of accounting for stock
compensation in accordance with APB No. 25 and related interpretations.
Statement No. 148 also amends the disclosure provisions of Statement No. 123 to
require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based
compensation on reported net income and earnings per share in annual and interim
financial statements. The disclosure provision of Statement No. 148 are required
to be adopted by all companies with stock-based employee compensation,
regardless of whether they account for that compensation using the fair value
method of Statement No. 123 or the intrinsic value method of APB No. 25. The
Company has adopted the disclosure provision of Statement No. 148.
3. - ACCOUNTS RECEIVABLE
- ------------------------
Accounts receivable are presented net of an allowance for doubtful accounts of
$3,544 as of March 31, 2003. Bad debt expense was $0 and $19,641 for the three
months ended March 31, 2003 and 2002, respectively, and -$35,672 and $39,312 for
the nine months ended March 31, 2003 and 2002 respectively. The negative $35,672
represents two receivables, which were previously charged to bad debt expense
but were both collected in January 2003.
4. - INVENTORIES
- ----------------
March
2003
Inventories consist of the following:
Finished goods, net $ 0
Raw materials, net 42,532
--------
$ 42,532
5. - PROPERTY AND EQUIPMENT
- ---------------------------
Property and equipment consist of the following at March 31, 2003:
Production molds Est. 5 yr life $ 77,113
Depreciation of $26,990 related to the molds has been expensed through the
period ended March 31, 2003.
8
6. - COMMITMENTS AND CONTINGENCIES
- ----------------------------------
Exclusive License Agreement
- ---------------------------
On August 19, 1999, the Company entered into an exclusive worldwide license
agreement with Beverly Sassoon International, LLC Beverly Sassoon and Elan
Sassoon. The agreement was modified in October 2000 and amended in March 2001.
The agreement grants the Company the rights to utilize Ms Sassoon's and Mr.
Sassoon's names and likenesses with the manufacturing and promotion of products,
except for hair care products. The term of this Exclusive License Agreement is
99 years, with a 99-year renewal at the Company's option.
The Company retains full control over the manufacturing, development and
marketing of the Company's products. Ms. Sassoon and Mr. Sassoon, through
Beverly Sassoon International, LLC will consult with the Company in connection
with product development and marketing.
Under the amended agreement, the Company pays Beverly Sassoon International, LLC
a royalty which is the greater of (i) $68,250 for each fiscal quarter in nine
equal installments on the 1st and 15th of each month or (ii) a payment within 5
days after the Company files its quarterly and annual financial statements with
the U. S. Securities and Exchange Commission equal to (A) 2% of estimated annual
gross revenue (as defined) up to $22,500,000, plus (B) 1.25% of estimated annual
gross revenues from $22,500,000 up to $45,000,000, plus (C) .75% of estimated
annual gross revenues exceeding $45,000,000. Notwithstanding the foregoing the
minimum payment shall be automatically increased to $75,000 for each fiscal
quarter in which the Company reports net income before depreciation and income
taxes. Under the amended agreement, the royalty payment termination date of
August 19, 2001 was changed to the period of the Exclusive License Agreement.
Leases
- ------
The Company has certain non-cancelable operating leases for office space and
office equipment. Rent expense was $19,510 and $18,182 for the three months
ended March 31, 2003 and 2002, respectively, and $56,192 and $53,676 for the
nine months ended March 31, 2003 and 2002 respectively.
On September 23, 2002, the Company relocated its Corporate Headquarters to 6501
Congress Avenue, Boca Raton, Florida 33487. The Company will be negotiating a
settlement with its previous landlord regarding the outstanding commitment under
the lease agreement. Until these negotiations are concluded, the company will
accrue the appropriate rent expense, which amounts to $27,981 as of March 31,
2003. The outcome of this matter may materially, adversely affect the Company's
operating results in future periods.
Purchase Commitment
- -------------------
The Company had molds produced in order to manufacture unique proprietary
bottles and caps for its products. The cost of these molds was to be recovered
over a five-year period by the purchase of these bottles plus an additional
amount for the molds. If the manufacturer does not recover the total cost of
$77,113, the Company will be required to pay any remaining balance. The first
orders of bottles and caps reduced the Company's payable of $77,113 to $67,532.
The Company has recorded the cost of the molds as a fixed asset and the
remaining payable as a long-term payable to supplier in the accompanying
condensed financial statements. Title to the molds passes to the Company upon
payment of the molds.
9
7. - RELATED PARTIES
- --------------------
In July of 2002, the Companies Board of Directors adopted a resolution to enter
into an investment agreement with two existing material shareholders of the
Company. In stages, the investors invested into the Company $280,000, in
exchange for a Promissory Note for $280,000 (Coupon of 10%, Maturity date of
April 30, 2003) and 840,000 Warrants to purchase common stock (expiration date
of July 19, 2007, exercise price of $0.01).
As of March 31, 2003, there is $780,000 of outstanding notes payable to related
parties. The Company incurred interest expense of $14,500 and $36,938 for the
three months ended and the nine months ended March 31, 2003 respectfully, and
has a balance of $51,938 in interest payable, which is included in payables to
related parties. In addition, the Company recognized $303,600 in additional
interest expense relating to the warrants issued in connection with the
promissory note above during the nine months ended March 31, 2003.
Royalty and other expenses for Beverly Sassoon International, LLC, a stockholder
of the Company and an entity controlled by Beverly Sassoon and Elan Sassoon,
were $68,250 and $68,250 for the three months ended March 31, 2003 and 2002,
respectively, and $204,700 and $204,750 for the nine months ended March 31, 2003
and 2002 respectively. At March 31, 2003, $11,375 of royalty is payable and is
included in payables to related parties.
In October 2000, the Company entered into a consulting agreement for financial
advisory and investment-banking services with an NASD broker dealer as
summarized in Note 11. The Company's secured note holder (see above) and primary
convertible preferred shareholder is a stockholder of the Company and president
of the broker dealer. Under this agreement, consulting expense was $15,000 and
$15,000 for the three months ended March 31, 2003 and 2002, respectively, and
$45,000 and $60,863 for the nine months ended March 31, 2003 and 2002
respectively. At March 31, 2003, $40,000 remains payable and is included in
payables to related parties.
Legal fees of $0 and $10,665 for the three months ended March 31, 2003 and 2002,
respectively, and $597 and $97,825 for the nine months ended March 31, 2003 and
2002 respectively were incurred with a law firm, in which the firm and certain
of its principals are stockholders of the Company.
Public relations expense and related expenses of $0 and $5,382 for the three
months ended March 31, 2003 and 2002, respectively, and $755 and $39,358 for the
nine months ended March 31, 2003 and 2002 respectively were incurred with a
public relations firm that is a stockholder of the Company.
10
8. - INCOME TAXES
- -----------------
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting For Income Taxes."
SFAS No. 109 requires the recognition of deferred tax liabilities and assets for
temporary differences, operating loss carry-forwards, and tax credit
carry-forwards.
A temporary difference is a difference between the tax basis of an asset or
liability and its reported amount in the financial statements that will result
in taxable or deductible amounts in future years when the asset is recovered or
the liability is settled. Deferred taxes represent the future tax return
consequences of these differences.
The Company has not recognized any benefit of such net operating loss
carry-forwards in the accompanying financial statements in accordance with the
provisions of SFAS No. 109 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's net deferred tax assets.
9. - STOCK OPTIONS AND WARRANTS
- -------------------------------
Stock Options
- -------------
The Company has a stock option plan entitled the 1997 Stock Option Plan under
which 1,000,000 shares of common stock have been reserved for issuance pursuant
to options granted under the plan. The Plan provides for the award of options,
which may be either incentive stock options (ISO's) within the meaning of the
Internal Revenue Code or non-qualified options (NQO's), which are not subject to
special tax treatment. The Plan is administered by the board of directors.
Subject to certain restrictions, the board of directors is authorized to
designate the number of shares to be covered by each award, the terms of the
award, the dates on which and the rates at which options or other awards may be
exercised, the method of payment, and other terms. As of March 31, 2003, the
Company had 644,167 options issued under this plan.
Warrants
- --------
During the nine months ended March 31, 2003, the Company issued the following
warrants which remain outstanding:
Warrants expiring the fourth quarter of 2007, to
purchase 450,000 shares of the Company's common stock, at $.01 per
share with registration rights with respect to the common stock
underlying the warrants. Interest expense of $96,750 has been recorded
as the cost of capital in additional paid-in capital.
Warrants expiring the third quarter of 2007, to purchase
390,000 shares of the Company's common stock, at $.01 per share with
registration rights with respect to the common stock underlying the
warrants. Interest expense of $206,850 has been recorded as the cost of
capital in additional paid-in capital.
11
10. - FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------------
The respective carrying value of certain on-balance sheet financial instruments
(cash, accounts receivable, 6% demand notes payable, accounts payable, and
accrued expenses) approximated their fair values. Fair values were assumed to
approximate carrying values for these financial instruments since they are short
term in nature and their carrying amounts approximate fair values or they are
receivable or payable on demand.
11. - FINANCIAL ADVISORY AND INVESTMENT BANKING SERVICES CONSULTING CONTRACT
- ----------------------------------------------------------------------------
On October 13, 2000, the Company entered into a consulting agreement for
financial advisory and investment banking services with an NASD broker dealer.
Certain principals of the broker dealer are stockholders of the Company,
including the primary convertible preferred shareholder. The agreement provides
a monthly consulting fee of $10,000 (amended to $5,000 per month effective
October 2001) plus five-year "cashless exercise" warrants to purchase 250,000
shares of the Company's common stock at an exercise price of $1.50 (as adjusted)
for which the broker dealer will have registration rights with respect to the
common stock underlying the warrants.
Additionally, the agreement provides for payment of a transaction fee equal to
1) 5% of the consideration up to $3,000,000, plus 2) 3% of the consideration
from and including $3,000,000 up to $5,000,000, plus 3) 1% of the consideration
including and in excess of $5,000,000. In addition to the consulting fee and
transaction fee, the agreement provides for payment of an alternate transaction
fee subject to a minimum of $25,000 and 1) in connection with any equity
securities financing in a public offering, a fee to be agreed upon by the
Company and the broker dealer; 2) in connection with any equity securities
financing in a private placement, a) a cash fee equal to 10% of the gross
proceeds raised, plus b) a non-accountable expense fee equal to 3% of the
offering price of the securities sold, plus c) the broker dealer shall have the
right to purchase, for $.01 each, "cashless exercise" warrants to purchase
common stock equal to 10% of the number of shares of common stock sold in equity
securities financing. The warrants will have a term of five years and have an
exercise price of 100% of the per share price (or conversion price of the
securities, if applicable) at which the investors invested in connection with
the equity securities financing and will be transferable to the broker dealer's
employees and affiliates. The broker dealer shall also be granted registration
rights with respect to the common stock underlying such warrants which will
include at least one demand registration right at the Company's cost and an
unlimited number of piggyback registration rights; 3) in connection with any
debt securities financing, such amount as shall be agreed upon by the Company
and the broker dealer; 4) in connection with any bank financing that is
consummated prior to termination of this agreement in which the broker dealer
acts as arranger, the Company shall pay the broker dealer aggregate arrangement
fees in an amount to be agreed upon, payable on the date of execution of
definitive documentation with respect thereto, which fee shall be in addition to
any fee payable to any affiliate of the broker dealer that may act as agent or a
member of a lending syndicate or otherwise as a participant in any such bank
financing.
12
The term of this agreement is for the three years ending October 12, 2003 and is
renewable by mutual consent. The agreement provides that the Company agrees to
retain the broker dealer on an exclusive basis in connection with a possible
transaction, alternate transaction or financing for the term of the agreement.
12. GOING CONCERN
- ------------------
In September 2002, the Company entered into an arrangement with Valuevision
d/b/a Shop NBC, to market its skin care products on their twenty-four hour
shopping network. In addition, in October 2002, the company entered into an
agreement with Keen Ween International Enterprises, Inc. to distribute Beverly
Sassoon & Co. products in the territory of China. Shop NBC accounted for 100% of
gross sales for the nine months ended March 31, 2003 and the company received
$100,000 of the $150,000 licensing fee as per the Keen Ween International
Enterprises, Inc. agreement. The Company incurred net losses of $239,362 and
$376,234 for the three months ended March 31, 2003 and 2002, respectively, and
$849,227 and $921,228 for the nine months ended March 31, 2003 and 2002,
respectively. Net cash used in operations was $282,994 and $1,207,977 for the
nine months ended March 31, 2003 and 2002, respectfully. The Company had net
sales of $46,387 and $0 for the three months ended March 31, 2003 and 2002
respectively, and $225,941 and $698,763 for the nine months ended March 31, 2003
and 2002 respectively. Due to recurring net losses and negative cash flows from
operations, there is substantial doubt about the Company's ability to continue
as a going concern.
Depending on future sales, the Company may be required to raise additional
funding to fund operations for the fourth quarter of the year ending June 30,
2003. The expected capital needs assume that the Company's demand note holders,
one of whom is the Company's controlling shareholder, will not demand payment of
his $630,000 demand notes or any significant part thereof. In addition $280,000
of the outstanding notes come due in April 2003.
The eventual outcome of the success of management's plans cannot be ascertained
with any degree of certainty. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
13 - SUBSEQUENT EVENTS
- ----------------------
As of March 31, 2003, the Company was due to receive a payment of $150,000 per
its signed agreement with Keen Ween International Enterprises, Inc., which
represented the balance of $50,000 due for the territorial licensing fee and
$100,000 towards future product purchases over the first nine months of the
agreement. In April 2003, the company received $50,000 of the $150,000, and
applied it toward the balance of the licensing fee due. The Company has put Keen
Ween International Enterprises, Inc. on notice that it is in default of its
agreement dated October 22, 2002.
In July of 2002, the Companies Board of Directors adopted a resolution to enter
into an investment agreement with two existing material shareholders of the
Company, part of which included a Promissory Note for $280,000 maturing on April
30, 2003. The Company is currently negotiating with the investors for an
extension on the note. At this time the Company is in default on the Note until
this issue is resolved.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company was incorporated in Florida on July 14, 1995 under the name CindyCo,
Inc. In August 1999, the Company changed its name to International Cosmetics
Marketing Co. (the "Company") and concurrently entered into an agreement for the
exclusive worldwide rights to use the names and likenesses of Beverly Sassoon
and Elan Sassoon.
The Company commenced operations in late 1999 to develop and distribute a
variety of skin care and nutritional products branded with the Beverly Sassoon
and Elan Sassoon names. Following the initial test phase from December 1999
through February 2001 using a network marketing distribution model, the Company
developed products for retail distribution. In the fourth quarter of fiscal
2001, the Company received orders from a large retail outlet for skin care
products and subsequently sun care products. In December 2001, the Company's
relationship with a large retail outlet was terminated and redirected its
marketing strategy to a direct-to-consumer approach. The Company began selling
its products on Shop NBC in September 2002.
In October 2002, the Company signed an agreement with Keen Ween International
Enterprises, Inc. to retain the rights to be the sole distributor for its
VitaOrganic SkinCare products in China, which includes Taiwan, Hong Kong and
Macau. In addition, the distributor plans to develop a wide range of Beverly
Sassoon branded products for distribution in China, for which the Company would
receive additional, ongoing royalties. To retain rights to develop and market
Beverly Sassoon products in the region in subsequent years, the distributor must
maintain a minimum level of purchases / royalties of $250,000 per quarter. All
payments are made in advance through wire transfer, prior to shipments.
The Company's objective is to develop a unique line of skin care products with a
quality and selection traditionally distributed through a direct-to-consumer
approach. The Company believes that a unique niche exists for their products in
the upper end of the mass market. As the awareness of the product line becomes
more established, the Company anticipates that some line extension can be
developed, as well as additional licensing opportunities.
The Company's fiscal year end is June 30 and its executive offices are located
at 6501 Congress Avenue, Suite 100, Boca Raton, Florida 33487. The Company's
telephone number is 561-999-8878.
14
RESULTS OF OPERATION
Comparison of the Company's financial information for the three and nine months
ended March 31, 2003 and 2002:
Company net sales for the three months ended March 31, 2003 and 2002 were
$46,387 and $0 respectively and for the nine months ended March 31, 2003 and
2002 were $225,941 and $698,763 respectively. The decrease in sales resulted
from the Company terminating its relationship with a large retail outlet last
fiscal year and by redirecting its marketing strategy to a direct-to-consumer
approach, which will involve a transition period. Licensing fee revenue of
$37,500 and $50,000 is included in sales for the three month and nine month
period ended March 31, 2003, respectively.
Gross profit as a percentage of net sales was 4% and 0% for the three months
ended March 31, 2003 and 2002, respectively and 59% and 45% for the nine months
ended March 31, 2003 and 2002, respectively. The increase in gross profit
resulted primarily from more favorable margins in on our new pricing strategy
under the new sales model.
Royalty expense was $68,250 and $68,250 for the three months ended March 31,
2003 and 2002, respectively and $204,700 and $208,250 for the nine months ended
March 31, 2003 and 2002, respectively.
Selling, general and administrative expenses were $158,386 and $202,859 in the
three months ended March 31, 2003 and 2002, respectively, and $436,995 and
$969,117 for the nine months ended March 31, 2003 and 2002, respectively.
Selling, general and administrative expenses as a percentage of net sales were
341% and 0% for the three months ended March 31, 2003 and 2002, respectively and
193% and 139% for the nine months ended March 31, 2003 and 2002, respectively.
The decrease in total dollars is primarily attributable to the reduction in
employees and their related cost of $212,257, as well as a reduction in
professional fees of $197,057 and selling expenses of $141,142. Lower net sales
levels generated the percentage increase.
Interest expense was $14,500 and $7,535 for the three months ended March 31,
2003 and 2002, respectively and $340,538 and $29,875 for the nine months ended
March 31, 2003 and 2002, respectively. The increase is attributable to a charge
of $303,600, which was related to warrants that were issued as part of a funding
agreement that was executed in July 2002.
Net losses were $239,362 and $376,234 for the three months ended March 31, 2003
and 2002, respectively and $849,227 and $921,228 for the nine months ended March
31, 2003 and 2002, respectively. Net loss as a percentage of net sales were 516%
and 0% for the three months ended March 31, 2003 and 2002, respectively and 376%
and 132% for the nine months ended March 31, 2003 and 2002, respectively. The
net loss in 2003 includes a $303,600 charge to interest expense related to the
issuance of warrants issued to raise working capital and a decrease in net sales
of $472,822.
The Company plans to funds it's operations through sales from ShopNBC, potential
licensing fees and international sales, and through new forms of distribution of
the company's current products and those in development. In addition, the
Company will continue to minimize expense and overhead.
15
CONCENTRATIONS
In the nine months ended March 31, 2003, 78% of the revenue was sales to Shop
NBC and the remaining 22% was licensing fees from Keen Ween International
Enterprises, Inc.
As of March 31, 2003, inventory on hand will be used primarily to fulfill the
orders of Shop NBC and future orders from Keen Ween International Enterprises,
Inc. The Company currently has one primary supplier for inventory containers,
packing and shipping material, and product fulfillment.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal needs for funds have been for working capital
(principally inventory purchases and operating expenses), commissions, royalty
expense, capital expenditures, and the development of operations for the U.S.
market. The Company has generally relied on cash flow from sales, as well as
cash generated from the issuance of convertible debentures, preferred stock,
common stock, and notes payable of approximately $7,700,000 since August 1999,
including approximately $6,920,000 and $780,000 from the issuance of stock and
secured notes, respectively, through March 31, 2003. Current funding will come
from sales through an arrangement with Valuevision d/b/a Shop NBC as well as
revenue generated from other sources. In addition, the Company might have to
raise additional capital to repay $280,000 in notes, which come due in April
2003. The Company is currently negotiating with the investors for an extension
on this note. At this time the Company is in default on the Note until this
issue is resolved.
For the nine months ended March 31, 2003, the Company had negative cash flow
from operations of $282,994. This negative cash flow from operations is
primarily related to the Company's net loss. Excluding the repayment of
outstanding notes of $280,000, the company is projecting that it will require
sales of approximately $75,000 per month to create a positive cash flow.
As of March 31, 2003, the working capital deficit was $1,304,793. Cash at March
31, 2003 was $53,641.
There were no capital expenditures for the nine months ended March 31, 2003. The
Company anticipates minimal, if any, capital expenditures during the remainder
of the fiscal year and plans to finance future expenditures from operations when
they occur.
The Company leases office space under a non-cancelable operating lease expiring
October 31, 2004. Minimum future operating lease obligations at March 31, 2003
were $123,357 including $19,043 for the remainder of fiscal 2003. On September
23, 2002, the Company relocated its Corporate Headquarters to 6501 Congress
Avenue, Boca Raton, Florida 33487. The Company will be negotiating a settlement
with its previous landlord regarding the outstanding commitment under the lease
agreement and the settlement may adversely affect the Company's ability to
implement its marketing strategy. As of March 31, 2003, $27,981 of rent expense
has been accrued.
16
The Company has redirected its marketing strategy to a direct-to-consumer
approach and has reduced its' operating expenses. The expected capital needs
assume that the Company's demand note holders, one of whom is the Company's
controlling shareholder, will not demand payment of his $630,000 demand notes or
any significant part thereof. There is no assurance that the Company can
generate profitable sales and raise additional funding if it is needed. The
failure of the Company to increase profitable sales and to raise additional
funding would have a material adverse effect on the Company's business,
financial condition, and results of operations and the Company may have to
curtail operations.
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.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Within the 90 days prior to the filing date of this report, the Company carried
out an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This
evaluation was done under the supervision and with the participation of the
Company's President / Chief Financial Officer and a Director. Based upon that
evaluation, they concluded that the Company's disclosure controls and procedures
are effective in gathering, analyzing and disclosing information needed to
satisfy the Company's disclosure obligations under the Exchange Act.
Changes in internal controls
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect those controls since the most recent
evaluation of such controls.
17
PART II OTHER INFORMATION
Item 1 Legal Proceedings
On November 7, 2000, a complaint was filed against the company and other
defendants in the Superior Court of the State of California for the County of
Santa Barbara (Case No. 01037203 - Ann Pennock Marshall v. Beverly Sassoon
International, LLC; Beverly Sassoon & Company; Beverly Sassoon, individually;
Paul Lambert; and Michelle Spitz). The complaint alleges that Beverly Sassoon
International, LLC ("BSI") and other defendants involved with BSI fraudulently
induced an elderly investor to loan $150,000 to BSI when BSI never intended to
pay the loan. The complaint alleges, among other things that the Company is the
successor in interest to BSI and is therefore liable to the Plaintiff. In the
third quarter of the fiscal year ended June 30, 2002, the lawsuit was settled
with a full, complete, mutual and general release of all claims at no cost to
the company. The settlement stated that certain shares of common stock held by
the Plaintiff be included in a Form SB-2 to be filed with the SEC. As of March
31, 2003, the form SB-2 has not been declared effective by the SEC. Per the
provisions of rule 479 under the Securities Act, as of January 31, 2003 the SEC
has the right to enter an order declaring the registration statement abandoned.
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 Submissions of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-B
10(xvii) Investment Agreement dated July 19, 2002 by and between
International Cosmetics Marketing Co. and Stanford Venture
Capital Holdings, Inc. and Nico P. Pronk.*
(b) Reports on Form 8-K during the fiscal quarter ended March 31,
2003.
None
* Previously filed.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, International Cosmetics Marketing Co. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
International Cosmetics Marketing Co.
By: /s/ Mark A. Pinvidic
---------------------
Mark A. Pinvidic, President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Nico P. Pronk Director May 9, 2003
- -----------------
Nico P. Pronk
/s/ Mark A. Pinvidic President and acting May 9, 2003
- -------------------- Chief Financial Officer
Mark A. Pinvidic
19
CERTIFICATIONS
I, Nico P. Pronk certify that:
1. I have reviewed this quarterly report on Form 10-QSB of International
Cosmetics Marketing Co.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 9, 2003
/s/ Nico P. Pronk
- -----------------
Nico P. Pronk, Director
20
I, Mark A. Pinvidic certify that:
1. I have reviewed this quarterly report on Form 10-QSB of International
Cosmetics Marketing Co.
2. Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
d) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
e) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
f) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
c) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
d) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 9, 2003
/s/ Mark A. Pinvidic
- --------------------
Mark A. Pinvidic, President and Acting CFO
21