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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark one)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1996
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 2-78335-NY
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J R CONSULTING, INC.
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(Name of small business issuer in its charter)
Nevada 13-3121128
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
c/o 201 South Biscayne Boulevard, Suite 3000, Miami, Florida 33131
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (305) 373-9400
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Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
None None
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Securities registered under Section 12(g) of the Act:
None
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(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES NO X
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State the issuer's revenues for its most recent fiscal year. $1,568,000
State the aggregate market value of the voting and non-voting equity held by
non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity.
$15,115,892 as of June 30, 1996, based on a price of $2.50 per share.
State the number of shares outstanding of the issuer's classes of common equity,
as of the latest practicable date.
10,944,955 shares of Common Stock, $.04 par value per share,
as of June 30, 1996.
Transitional Small Business Disclosure Format (check one)
YES ; NO X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
J R Consulting, Inc. (the "Company" or the "Registrant") was
organized under the laws of the State of Nevada on June 8, 1982. Since
inception, the Company generated nominal revenues, and for at least the two
fiscal years prior to September 7, 1995 was not actively engaged in business.
RECENT ACQUISITIONS AND INVESTMENTS
As of September 7, 1995, the Company, through a series of
transactions, acquired all of the issued and outstanding capital stock of
Benatone Limited, then known as Classlife Limited, a company formed under the
laws of England ("Benatone"), in exchange for an aggregate 1,020,932 shares of
the Company's Common Stock. Benatone, through its subsidiaries, is engaged in
the manufacture and sale of screwless electrical accessories, including
electrical plugs, rewirable and non-rewirable plugs, and connector blocks. Such
products are marketed along with ancillary services to the electrical and
electronic markets.
Also, as of September 12, 1995, the Company consummated the
acquisition of 21,390 Class B Ordinary Shares of Autokraft Ltd., a United
Kingdom corporation ("Autokraft"), representing 20% of the issued and
outstanding Ordinary Shares but representing 50% of the voting power of
Autokraft, in exchange for 632,585 shares of Common Stock of the Company. The
Company also entered into a Stock Subscription Agreement with Autokraft dated as
of September 12, 1995, pursuant to which the Company agreed to purchase an
aggregate 1,925 Class B Ordinary Shares of Autokraft for $150,000 as of that
date, and further agreed to purchase, in the Company's sole discretion and
without obligation, an additional 4,492 Class B Ordinary Shares of Autokraft for
$350,000 on or before October 12, 1995. Autokraft and its subsidiaries were
engaged in the design, manufacture and distribution of automobiles, including
the AC Cobra and the AC Ace automobiles. Both the AC Cobra and AC Ace were
high-powered, hand-crafted, aluminium-bodied sports cars.
Furthermore, on March 1, 1996, the Registrant acquired, for
1,393,077 shares of the Registrant's common stock, all of the issued and
outstanding capital stock of, and a debt receivable from, Prima Eastwest Model
Management, Inc., a company formed under the laws of California ("Prima"). Prima
primarily operates a modeling agency in Los Angeles, California.
DELAY IN FILING REPORTS AND AUDITORS' DISCLAIMER OF OPINION
Because of accounting problems discovered at Prima after the
Company acquired it, the Company was unable, beginning with its Form 10-QSB for
the fiscal quarter ended March 31, 1996, to file timely the periodic reports
required to be filed with the Securities and Exchange Commission (the "SEC") by
the Securities Exchange Act of 1934 (the "Exchange Act"). In
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April 1997, the Company consented to the entry against it of a permanent
injunction obtained by the SEC for the Company's failure to file those reports
on a timely basis. For a more detailed description of the permanent injunction,
please see Item 3 of this report entitled "Legal Proceedings."
At the date of filing this report, the Company had filed its Form
10-QSB for the fiscal quarter ended March 31, 1996. The Company currently
expects to file its Forms 10-QSB for the fiscal quarters ended September 30, and
December 31, 1996, and March 31, 1997, in the near future and to file with the
SEC its future Exchange Act periodic reports, beginning with the Form 10-KSB for
the fiscal year ended June 30, 1997, on a timely basis.
Furthermore, the Prima accounting problems have caused Coopers &
Lybrand, the Company's independent auditors, to disclaim any opinion on the
Company's consolidated financial statements at June 30, 1996, and for the year
then ended because the financial records of Prima have not permitted the
application of auditing procedures necessary to express an opinion on those
consolidated financial statements. For the period during which Prima was a
subsidiary of the Company (March 1 through June 30, 1996), the records
maintained by Prima were unauditable with respect to balances for accounts
receivable from and accounts payable to models, as explained in Note 3 to the
Company's consolidated financial statements.
In the acquisition agreement for Prima, the former majority
shareholder of Prima had agreed to provide the Company by April 6, 1996, with
financial statements of Prima for the year ended December 31, 1995, audited by
an accounting firm engaged by the former majority shareholder. He also agreed to
obtain from those auditors any necessary consents so that those audited
financial statements of Prima could be included in the Company's periodic
reports required by the Exchange Act and in a registration statement filed by
the Company pursuant to the Securities Act of 1933, as amended.
The acquisition agreement for Prima also provided that the former
majority shareholder of Prima would continue to have full operational control of
Prima following the acquisition. The Company agreed to this because part of the
consideration that it agreed to pay for Prima was contingent based upon Prima's
financial performance over the three-year period beginning July 1, 1996. The
former majority shareholder of Prima, who also became a significant shareholder
of the Company as a result of this acquisition, could be removed from such
operational control only with "cause," as that term was defined in the
agreement.
Prior to the consummation of the acquisition of Prima, the Company
had received management-prepared financial statements of Prima for the year
ended December 31, 1995, and drafts of audited financial statements for the year
ended December 31, 1994. The Company acquired Prima on the basis of those
financial statements.
However, the audited financial statements for Prima required by the
acquisition agreement were not delivered by the agreement deadline of April 6,
1996. Thereafter, the Company engaged in extensive negotiations with the former
majority shareholder of Prima and
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the auditors engaged by him regarding the preparation and delivery of the
required financial statements. The former majority shareholder of Prima gave up
operational control of Prima later in 1996.
The Company then began dealing directly with Prima's accounting
staff and the auditors for Prima. Until then, the Company had received
management-prepared financial reports on a regular basis. However, upon a review
of Prima's accounting procedures subsequent to the departure of the former
majority shareholder, the Company discovered that there were fundamental flaws
and inconsistencies in them. Not until the first quarter of 1997 did the
auditors engaged by the former majority shareholder of Prima inform the Company
that they would be unable to express an opinion on the financial statements of
Prima for the two years ended December 31, 1995, and for the six months ended
June 30, 1996.
In the fall of 1996, the Company began reconstructing Prima's
accounting records for the period from March 1, 1996, the date upon which Prima
became a subsidiary of the Company, to June 30, 1996. With the exception of the
balances for accounts receivable from and accounts payable to the models, as
explained in Note 3 to the Company's consolidated financial statements included
in this report, the reconstruction of those records is nearly complete.
The Company is continuing the reconstruction of Prima's accounting
records for prior periods. At the same time, the Company is instituting revised
accounting systems and internal controls in order to prevent a recurrence of
similar accounting problems at Prima.
Because of these problems, the Company is seeking a significant
reduction in the purchase price that it paid for Prima. For more information on
this and on the Company's plans for Prima, please see "Future Plans for Benatone
and Prima" in Item 6 of this report entitled "Management's Discussion and
Analysis or Plan of Operation."
BENATONE LIMITED
PRODUCTS
Benatone manufactures and distributes the patented Simplug
screwless rewirable plug. The cables are retained within the electrical plug by
means of saddle clamps and not screws, making the product ideal for quick
assembly in manufacturing industries as compared to the normal screw-type plug.
The plug is deemed safer than the conventional plug in use with alternating
current, which tends to loosen screw-type fixings.
Benatone manufactures a specifically designed jig to enable fast
wiring of the Simplug, which is sold separately to the user. Benatone has
further enhanced the jig by enabling it to be attached to an electrical tester,
allowing the operative to wire the Simplug and test the complete assembly in
one motion and saving time and labor for the manufacturer.
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The product is suited to manufacturer use because of ease of
assembly and the requirement to assemble the plug to cable as the last part of
assembly. The use of the enhanced jig with electrical tester is beneficial to
the luminaire industry, which is required to test each lamp assembly before sale
to the public.
Benatone also runs separately an assembly operation for
manufacturers of other products. It assembles and tests extension sockets with
variable length cable for a United Kingdom manufacturer of such products. It
also assembles table lamps for United Kingdom sports clubs in addition to other
smaller electrical assembly operations.
MARKETS
The Simplug is sold principally to the luminaire industry in
England and Ireland, including Northern Ireland. The luminaire market alone in
the United Kingdom is in the region of 6 million units per year.
MARKETING STRATEGY
Sales are generated by direct contact through Benatone's sales team
and in advertising through specialist magazines.
NEW PRODUCTS
Benatone is developing the next generation of Simplug made of more
durable materials, which should result in reduction in manufacturing costs. The
plug will also be more consumer friendly and Benatone will seek to sell the same
in the retail markets.
Benatone has also developed a non-rewirable plug aimed at
manufacturers. The product has all necessary British Standard registrations but
is not yet in production.
Benatone is also in research for the application of the saddle
clamp in other electrical applications. This is an ongoing process and new
developments will be announced as they are completed and ready for production.
MANUFACTURING
The Simplug is manufactured in China to full British Standards
Institute ("BSI") requirements and each electrical plug carries the British
Kitemark as to quality. The Simplugs are received in the United Kingdom as
complete units, where they are checked before delivery to purchasers. Benatone
is actively seeking a manufacturer to produce its non-rewirable plug and current
Simplug rewirable plug. It has approached manufacturers in India, China and
South Africa and is currently working with them to secure BSI certification for
the manufacture of the products.
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COMPETITION
The electrical plug industry is very competitive with many
manufacturers in the Far East. Competition is normally based on price.
The Simplug does not compete directly with other plugs on price
alone. While it is sold at almost 40% more than other screw-type plugs, its
qualities far outweigh its higher price. Effective quality controls mean that
the returns are less than 0.001% of total sold. The Simplug can be assembled to
cable using the jig at three times the speed of the screw-type plug. Further, in
the luminaire industry, the product being assembled can be electrically tested
at the same time. Management believes that both these latter two savings on time
and labor make the product unique and thus have no direct competition.
Many competitors are producing non-rewirable plugs and this type of
plug is gaining favor with many manufacturers. In this respect, Benatone
anticipates that its own non-rewirable plug will in the future gain a foothold
in the industry, although there are no assurances that this will occur.
Benatone seeks to compete on the quality of its product. The new
generation of plug currently being developed should enable Benatone to compete
more directly on price.
PATENTS
The Company, through another subsidiary of Benatone, holds the
patents for the use of the saddle clamp method of restraining electrical cable
to the terminals in plugs and associated electrical products. These patents
cover the United Kingdom, most of Europe, the United States, Canada, Japan,
Australia and South Africa. A royalty of $0.0388 per plug sold is required to be
paid to the inventor under a Royalty Agreement dated September 7, 1995, which
will continue until the expiration of the patents in the year 2011. Both the
Simplug and the non-rewirable plug are patented.
REGULATION
Benatone is ISO 9001 registered with BSI. It carries out research
and development and manufacture and assembly of electrical products with quality
control and systems that are acknowledged worldwide. The Simplug has BSI 1363
approval and also has a Kitemark license. The non-rewirable plug also has BSI
1363 approval and will be kitemarked when in production. All electrical products
or components must be tested and approved by the BSI to the exacting
requirements set by that institute before any electrical component or product
can be sold to the public.
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RESEARCH AND DEVELOPMENT
Benatone carries out a research and development program, which it
funds itself. That research has resulted in the new generation of Simplug, which
is presently undergoing internal and external evaluation prior to testing with
the BSI. During the fiscal year ended June 30, 1996, Benatone spent $91,000 on
research and development activities.
EMPLOYEES
At June 30, 1996, Benatone had 12 full-time employees. None of the
employees is subject to any collective bargaining agreement. Benatone employs
temporary employees at peak periods throughout the year on an as and when
required basis. Benatone considers its relationship with its employees to be
good.
PRIMA EASTWEST MODEL MANAGEMENT, INC.
SERVICES
Prima is divided into three principal divisions designated "Print,"
"Studio" and "Profile." Each is headed by an experienced manager in the
particular field.
The Print division operates in the competitive modeling agency
field and is subdivided into male and female subdivisions. Management believes
that the Print division is one of the leading agencies in this field in Los
Angeles. These models are utilized by department stores, catalog houses,
advertising agencies, magazines, record companies, movie production firms and
general industrial advertisers.
To complement the print model agency, Prima also maintains a
photographic studio to cater to the needs of the photographic industry. The
studio was refurbished in December 1996 to high standards with particular regard
to the requirements of photographers and is regarded as one of the two premier
facilities in Los Angeles, located as it is in the heart of Hollywood. To
encourage the growth of the studio, Prima in July 1996 enlisted to its team
Quixote, which is well known for its supply of custom designed motor homes for
the film industry.
Prima also provides hair, makeup and styling services for models,
actors, actresses and celebrities through its Profile division. This division
not only offers an important service to its print modeling arm, but also
provides Prima with an entry into the celebrity/entertainment field. It can thus
play a key role in the promotion of young models in the entertainment industry.
Prima intends to commence operation of a Talent and Commercial
division during late 1997, although there is no assurance that this will occur.
This division will seek to introduce models who may have a career in the
entertainment industry into both the audio and visual
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entertainment industry and conversely to expand the exposure and portfolio of
artists in audio and visual entertainment in the print modeling industry.
MARKETS
The traditional markets for Prima are in the field of print. This
includes not only magazines such as Harpers Bazaar, Glamour, GQ, Mirabella,
People, Seventeen, Town and Country and Vogue, but also advertising agencies,
catalogs such as Spiegel and Avon, the large major department stores such as
Macy's and Bloomingdale's, movie production companies such as Tri-Star, Warner
Brothers and Columbia Pictures, record companies such as EMI and Polygram and
general industry such as Calvin Klein and Levi's, with major new clients such as
Annhall Inc., Carlson & Partners, the Gianni Versace organization, Playboy, and
Broadway.
Profile is very much in the entertainment industrial heartland of
Hollywood. The Talent and Commercial division would also be linked to this
industry with the introduction of models to the entertainment industry and the
expansion of portfolios for actors and actresses through print modeling.
The studio's market is the niche market of photo-shoots. It
benefits from its location central to Hollywood and its ease of access and
excellent facilities.
MARKETING STRATEGY
Prima advertises in trade journals used extensively by
professionals seeking such services. Prima's models have been widely seen on
hundreds of magazine covers and this creates a flow of new clients and new
models. Prima also relies on its reputation to attract both clients and model
talent.
COMPETITION
Prima's Print division competes with the major worldwide model
agencies, several of which are headquartered in New York. Prima also competes
with many smaller regional firms. Because Prima frequently works with a network
of independent agencies when placing its models in other markets and conversely
helps place other agencies' models in the Los Angeles market, Prima can compete
with the major agencies on a worldwide basis.
While the New York market with the larger firms tends to attract
the super models with its major European markets and larger fee income, Los
Angeles on the other hand attracts models who are also seeking an entry into the
entertainment industry. The entertainment industry dominates the Los Angeles
market and Prima is thus able to provide agency services for models to both
print and entertainment industry work. In particular, the success to date of its
Profile division, with its service of both the modeling and celebrity market,
and the introduction of the Talent and Commercial division at Prima should
ensure the continued highly competitive position of Prima in the entertainment
and modeling industry, particularly in the Los
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Angeles area, although there is no assurance that this will occur. A competitor
of Profile has also started a hair and makeup division to try and compete in
this attractive market.
The Studio division competes with only one firm, which is located
by the ocean and is not as centralized as the Studio division. The Studio
division's location is its principal asset, apart from the availability of three
separate studio areas, makeup, catering facilities and year-round operation.
AVAILABILITY OF TALENT
Any modeling agency must expand by the talent that it has as part
of its portfolio. Prima has had and continues to have a solid foundation of
existing talent, both male and female, and its reputation assists in introducing
new talent to the industry. Furthermore, Prima operates an around-the-year
scouting policy with individual scouts traveling around the United States,
Europe (both central and eastern) and South America in search of new talent
which Prima can promote not only in its Print division, but also in its
introduction of the Talent and Commercial division.
CUSTOMER AND TALENT BASE
Prima has been established for over ten years. Over that period, it
has maintained a wide stock of both customers and models. The client base is
very diverse from department stores through record companies and movie
production firms and is not linked solely to the geographic Los Angeles market.
This wide base in both customers and talent enables Prima to meet the demands of
the industry, and it can utilize this base to expand its operations.
The Profile division, which serves all of the model (not just
Prima) movie and celebrity market, has shown excellent progress in the
estimation of the Company's management. It continues to play a significant part
in the expansion of revenue for Prima.
REGULATION
Prima holds a Talent License issued by the State of California
expiring December 27, 1997. This license enables it to operate as a talent
agency for all purposes other than film and the like. In this respect, Prima is
in the process of obtaining a Screen Actors Guild license in respect of those of
its talent who may be used in the film or affiliated industries.
EMPLOYEES
At June 30, 1996, Prima had 20 full-time employees. None of the
employees is subject to any collective bargaining agreement. Prima considers its
relationship with its employees to be good.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company's current address is c/o 201 South Biscayne Boulevard,
Suite 3000, Miami, Florida 33131. The mailing address is provided by the
Company's legal counsel, at no cost to the Company. The Company does not own or
lease any equipment or property.
Benatone operated from premises at Unit 19, Glenfield Park,
Phillips Road, Blackburn, Lancashire, England, consisting of 5,000 square feet
of general industrial property with ancillary offices. It held the premises on a
month-to-month tenancy, including services, at a current rent of $3,108 per
month.
Prima leases offices at 6855 Santa Monica Boulevard, Suite 406, Los
Angeles, California, consisting of 2,400 square feet. The premises have been
held on a month-to-month tenancy since May 1996 at a current rent of $2,400 per
month. Prima also leases a studio industrial building at 7070 Santa Monica
Boulevard, Los Angeles, California, consisting of 6,000 square feet. The
premises are held pursuant to a lease that expires in October 2007, subject to
the landlord's right to terminate the lease early on or after October 7, 1998,
upon 12 months' prior written notice. The current rent is $7,275 per month.
ITEM 3. LEGAL PROCEEDINGS
Prima is a party to litigation which began on January 30, 1997, and
styled The Long Island Savings Bank, F.S.B. v. Prima Management, Prima Eastwest
Model Management, Inc., Kenneth Godt, Edward T. Stein, and Jeffrey Dash, Supreme
Court of the State of New York, County of Suffolk, Index No. 3904-97. LISB is
suing all of the defendants for approximately $413,151 based upon a demand loan
that LISB made to Godt, Stein, Dash and Prima Management and allegedly
guaranteed by Prima. Under the terms of the alleged guarantee, Prima is
primarily liable along with the original obligors in the event of a default. If
Prima is found to be liable to LISB as the guarantor of the note, it will seek
contribution from the original obligors. Prima is vigorously defending this
litigation.
The Company and Prima are parties to litigation began on February
12 1997, and styled Kenneth Godt v. The Long Island Savings Bank, F.S.B., J R
Consulting, Inc., Pemm Acquisition Corporation and Prima Eastwest Model
Management, Inc., United States District Court, Eastern District of New York,
Case No. CV-97-0756 (JS). Pemm Acquisition Corporation ("Pemm") was the
wholly-owned subsidiary of the Company that was merged into Prima on March 1,
1996, in order to consummate the Company's acquisition of Prima. Plaintiff
alleges that Prima promised that it would repay a demand loan that Godt,
together with Jeffrey Dash and Edward T. Stein, received from The Long Island
Savings Bank, F.S.B. ("LISB"). Godt claims that the Company and Pemm agreed to
pay Godt's indebtedness to LISB upon the closing of the acquisition of Prima by
the Company through the merger of Pemm into Prima. Prima allegedly guaranteed
the loan, and, under the terms of the guarantee, is allegedly primarily liable
along with the original obligors in the event of a default. Because of the
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structure of the acquisition of Prima by the Company, management of the Company
believes that neither the Company nor Pemm has any liability to Mr. Godt in this
litigation. Prima is vigorously defending this litigation.
The Company consented to the entry against it of a Final Judgment
of Permanent Injunction dated April 25, 1997, in a Civil Action against it by
the Securities and Exchange Commission (the "SEC"), Case No. 97-834, in the
United States District Court for the District of Columbia. The SEC initiated the
civil action because the Company had failed to file timely its Form 10-KSB for
the fiscal year ended June 30, 1996; and its Forms 10-QSB for the fiscal
quarters ended March 31, September 30, and December 31, 1996. The judgment
required the Company to file with the SEC all of the foregoing reports by May
15, 1997, and enjoined the Company from failing to file future periodic reports
on a timely basis.
Although the Company has been working diligently to reconstruct the
accounting records of Prima and file the reports listed in the judgment, as
described in more detail in "Delay in Filing Reports and Auditors' Disclaimer of
Opinion" in Item 1 of this report entitled "Description of Business," the
Company was not able to file the reports listed in the judgment by May 15, 1997.
In addition, the Company has not been able to file timely its Form 10-QSB for
the fiscal quarter ended March 31, 1997.
At the date of filing this report, the Company had filed its Form
10-QSB for the fiscal quarter ended March 31, 1996. The Company currently
expects to file its Forms 10-QSB for the fiscal quarters ended September 30, and
December 31, 1996, and March 31, 1997, in the near future and to file its future
periodic reports, beginning with the Form 10-KSB for the fiscal year ended June
30, 1997, on a timely basis.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since July 1995, the Company's Common Stock has been quoted on the
NASDAQ OTC Bulletin Board(R). The following sets forth the high and low bid
prices of the Company's Common Stock for each quarter during the preceding two
fiscal years. Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions:
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<TABLE>
<CAPTION>
HIGH BID LOW BID
-------- --------
<S> <C> <C>
July 1, 1994 - September 30, 1994 Not Quoted Not Quoted
October 1, 1994 - December 31, 1994 Not Quoted Not Quoted
January 1, 1995 - March 31, 1995 Not Quoted Not Quoted
April 1, 1995 - June 30, 1995 Not Quoted Not Quoted
HIGH BID LOW BID
-------- --------
July 1, 1995 - September 30, 1995 $3.50 $0.125
October 1, 1995 - December 31, 1995 3.50 1.375
January 1, 1996 - March 31, 1996 4.0625 1.75
April 1, 1996 - June 30, 1996 3.75 2.375
</TABLE>
As of June 30, 1996, the Company had 1,177 holders of record of its
Common Stock.
DIVIDENDS
The Company has not declared any cash dividends with respect to its
Common Stock during the prior two years, and does not anticipate paying cash
dividends on its Common Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Prior to September 7, 1995, the Registrant was not actively engaged
in any business. Consequently, any comparison between the fiscal year ended June
30, 1996, and the fiscal year ended June 30, 1995, is not meaningful.
Effective September 7, 1995, the Registrant acquired, in exchange
for 1,020,932 shares of the Registrant's common stock, all of the issued and
outstanding capital stock of Benatone Limited, then known as Classlife Limited,
a company formed under the laws of England ("Benatone"). Benatone engages in the
manufacture and sale of screw-less electrical accessories, including electrical
plugs.
On September 12, 1995, the Registrant acquired, in exchange for
632,585 shares of the Registrant's common stock, an equity interest of 20% but
with 50% of the voting power in Autokraft Ltd., a company formed under the laws
of England ("Autokraft"). Autokraft, together with its subsidiaries, engaged in
the design, manufacture and distribution of automobiles, including the AC Cobra
and the AC Ace automobiles.
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On March 1, 1996, the Registrant acquired, for 1,393,077 shares of
the Registrant's common stock, all of the issued and outstanding capital stock
of, and a debt receivable from, Prima Eastwest Model Management, Inc., a company
formed under the laws of California ("Prima"). Prima primarily operates a
modeling agency in Los Angeles, California.
The Registrant incurred an operating loss of $1,513,000 for the
fiscal year ended June 30, 1996, of which $336,000 is attributable to the
operations of Benatone, $579,000 is attributable to the operations of Prima and
the balance to corporate. It had net sales of $1,568,000, $953,000 of which by
Benatone and $615,000 of which by Prima. These results are for a ten-month
period for Benatone and a four-month period for Prima.
Benatone's plug sales were less than expected. During the first
four months following the acquisition of Prima (March-June 1996), when Prima was
being run by the management that the Registrant inherited in the acquisition,
Prima suffered a significant operating loss as costs spiraled and only one
division met its operating forecasts.
The Registrant wrote off its investment in Autokraft because
Autokraft went into administrative receivership on March 7, 1996, and the
receivers have indicated to the Registrant that there will not be any
liquidating dividend to Autokraft's shareholders. Although the Registrant
proposed a financing package for Autokraft that it considered adequate, the
directors representing the other shareholders of Autokraft rejected the proposal
and forced Autokraft into receivership.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Registrant had a working capital deficit
of $1,067,000. The Registrant has no current plans for future acquisitions and
no current plans for significant capital expenditures during the fiscal year
ending June 30, 1997, and beyond. The Registrant plans to consolidate its
existing operations and establish them on a profitable basis as a platform for
future growth. The Registrant's working capital needs in the short term to
achieve a position of stability and profitability will be met from revenues
generated from the operations of Benatone and Prima, from cash on hand, and if
required, from additional debt and/or equity financing, although no assurance
can be given that such additional debt and/or equity financing will be
consummated. Since June 30, 1996, the Registrant has been able to arrange some
additional equity financing and will continue to monitor the financial
requirements of the operations of Benatone and Prima.
FUTURE PLANS FOR BENATONE AND PRIMA
As a result of Benatone failing to reach forecasted sales for the
fiscal year, the Registrant is currently holding discussions with the sellers
with respect to a significant reduction in the original purchase price. There
can be no assurance that the Registrant will be successful in obtaining the
desired reduction or any reduction in that price from the sellers.
-12-
<PAGE> 14
The Registrant is reviewing the performance of its senior and
middle management of Benatone. Retailers of Benatone's products are increasingly
demanding a non-rewirable plug. Benatone currently sells a rewirable plug but
has not yet found a suitable manufacturer for its own version of the
non-rewirable plug. During the fiscal year beginning July 1, 1996, the
Registrant arranged to cause Benatone to focus on the following actions to avoid
the problems suffered in the fiscal year ended June 30, 1996:
1. Development of a new, more "consumer friendly"
rewirable plug that can be placed directly with
retailers.
2. Further assessment of Benatone's version of the
non-rewirable plug.
3. Expansion of the sales department.
4. Reduction in overhead expense.
During the fiscal year beginning July 1, 1996, the Registrant
arranged to have Prima take the following actions to correct the deficiencies
that surfaced right after the acquisition:
1. Reduction in overhead expense.
2. Expansion of the existing operating divisions.
3. Assessment of the profit potential from the additions
of other compatible operating divisions.
4. Improvement in accounting and control systems.
Because of the losses in both income and goodwill incurred by Prima
during the period that the former management operated its business after the
acquisition, the Registrant is currently holding discussions with the former
majority shareholder of Prima with respect to a significant reduction in the
original purchase price. There can be no assurance that the Registrant will be
successful in obtaining the desired reduction or any reduction in that price
from the former majority shareholder.
SIGNIFICANT ACCOUNTING CHANGES
The Registrant filed Form 10-QSB for the third fiscal quarter ended
March 31, 1996, incorporating a fair value of $3.00 for each of the Company's
shares issued in respect of the investment in Autokraft and $2.60 for each of
the Company's shares issued in respect of the acquisition of Prima. On
completing its own financial statements to June 30, 1996, in accordance with
United States generally accepted accounting principles, the Company re-assessed
-13-
<PAGE> 15
the fair value of the investment in Autokraft and the fair value of Prima. Based
on the appointment of an administrative receiver for Autokraft, the Company in
its financial statements reduced the value of the shares issued to acquire the
investment in Autokraft to $0.04 per share as representing the fair value of the
investment. Also, since acquisition, Prima has encountered much lower revenue
figures, reduced goodwill and accounting problems. After the Company resolved
most of the accounting problems, a significant negative asset value of Prima on
acquisition became apparent. Consequently, the Company in its financial
statements reduced the value of the shares issued for the acquisition of Prima
to $0.04 per share as representing a fair value of the acquired company.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements are attached to this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company's Current Report on Form 8-K dated November 6, 1995, is
hereby incorporated herein by reference. As explained in the section entitled
"Delay in Filing Reports and Auditors' Disclaimer of Opinion" in Item I of Part
I, the Company's current auditors have issued a disclaimed opinion on the
Company's financial statements for the fiscal year ended June 30, 1996.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth certain information as of June 30,
1996, with respect to the Directors and Executive Officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Peter Zachariou 35 President and Chairman of
the Board of Directors
Gabriel Harris 44 Secretary and Director
David Lean 49 Treasurer and Director
</TABLE>
-14-
<PAGE> 16
Directors are elected at the annual meeting of shareholders and
hold office until the following annual meeting and until their successors are
elected and qualified. All Executive Officers serve at the discretion of the
Board of Directors.
Peter Zachariou has been President and Chairman of the Board of
Directors of the Company since June 23, 1995, and Treasurer of the Company since
July 15, 1997. From June 23, 1995 until August 11, 1995, Mr. Zachariou was also
Secretary and Treasurer of the Company. For at least the preceding five years,
Mr. Zachariou has been a private investor.
Gabriel Harris has been Secretary and a Director of the Company since
August 11, 1995. For at least the preceding five years, Mr. Harris has also been
a solicitor on his own account in England.
David Lean has been a Director of the Company since August 11, 1995,
and was Treasurer of the Company from April 11, 1995, to May 9, 1997. For at
least the preceding five years, Mr. Lean has also been a managing director of a
United Kingdom subsidiary of a Canadian mining company.
The Company's securities are not registered under Section 12(g) of the
Exchange Act. Accordingly, the Directors and Executive Officers of the Company
are not required to file reports under Section 16(a) of that act.
ITEM 10. EXECUTIVE COMPENSATION
No Director or Executive Officer of the Company received any cash
compensation during the fiscal year ended June 30, 1996.
All members of the Company's Board of Directors, whether officers
of the Company or not, may receive an amount yet to be determined annually for
their participation in meetings of the Board and will be required to attend a
minimum of four meetings per fiscal year. The Company reimburses all expenses
for meeting attendance or out-of-pocket expenses connected directly with their
Board participation.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of June 30, 1996, by each
Director, Executive Officer and any person known to the Company to own
beneficially more than 5% of the Company's Common Stock and by all Directors and
Executive Officers of the Company as a group.
-15-
<PAGE> 17
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OF COMMON STOCK PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNED (1)
- ------------------- ------------------ ---------
<S> <C> <C>
Peter Zachariou 4,897,598(2) 44.7%(2)
Units 13-16
Euro Trading Estate
Oak Street
Blackburn BB1 6PL, England
Gabriel Harris - -
Units 13-16
Euro Trading Estate
Oak Street
Blackburn BB1 6PL, England
David Lean 1,000 *
Units 13-16
Euro Trading Estate
Oak Street
Blackburn BB1 6PL, England
Edward T. Stein 634,942 5.8%
201 N. Service Road
Melville, New York 11747
Brain Angliss 632,585 5.8%
Vickers Drive
Brooklands Industrial Park
Weybridge, Surrey, England
Francis Vause 568,332 5.2%
12 Hayfield
Beachwood, Blackburn
Lancashire BB2 7BP, England
All officers and directors 4,898,598 44.8%
as a group (3 persons)
</TABLE>
- --------------------
* Less than 1%.
(1) Based upon 10,944,955 shares of Common Stock outstanding as of June
30, 1996.
(2) Mr. Zachariou is the sole shareholder and a principal of Havilland
Ltd., the holder of record of these shares.
-16-
<PAGE> 18
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended June 30, 1996, Peter Zachariou, a
Director and the President and Treasurer of the Company; David Lean, a Director
of the Company; and Minden Business Corporation ("Minden"), an affiliate of Mr.
Lean, from time to time made cash advances to the Company. The advances are
unsecured, payable on demand and interest-free. The largest aggregate amount of
the advances made by Mr. Zachariou, Mr. Lean and Minden during the fiscal year
and the outstanding aggregate amount of such advances at June 30, 1996, were
both $103,000, $96,000 and $68,000, respectively.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation, as amended (1)
3.2 By-Laws, as amended (1)
10.1 Benatone Exchange Agreement - Creditors (2)
10.2 Benatone Share Acquisition Agreement (Weldnow Enterprises
Ltd.) (2)
10.3 Benatone Share Acquisition Agreement (Dynedeem Limited) (2)
10.4 Benatone Exchange Agreement (2)
10.5 Benatone Asset Sale Agreement (2)
10.6 Benatone Royalty Agreement (2)
10.7 Benatone Consultancy Agreement (2)
10.8 Benatone Deed (2)
10.9 Autokraft Stock Purchase Agreement (3)
10.10 Autokraft Stock Subscription Agreement (3)
10.11 Prima Agreement and Plan of Merger (4)
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule
- ---------------------
(1) Incorporated herein by reference to Registrant's Registration
Statement on Form S-18, declared effective August 10, 1982 (SEC File
No. 2-78335-NY), and to Registrant's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1995.
(2) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated September 7, 1995.
(3) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K/A dated September 12, 1995.
(4) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated March 1, 1996.
-17-
<PAGE> 19
(b) Form 8-K
The Registrant did not file any Current Reports on Form 8-K during the
last quarter of the fiscal year ended June 30, 1996.
-18-
<PAGE> 20
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
J R CONSULTING, INC.
Date: September 29, 1997 By: /s/ Peter Zachariou
-------------------------------------
Peter Zachariou, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Peter Zachariou President/Principal September 29, 1997
- ------------------------------------ Executive and Financial
PETER ZACHARIOU Officer and Director
/s/ Gabriel Harris Secretary and Director September 29, 1997
- ------------------------------------
GABRIEL HARRIS
/s/ David Lean Principal Accounting September 29, 1997
- ------------------------------------ Officer and Director
DAVID LEAN
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
FILED PURSUANT TO SECTION 15(D) OF THE
EXCHANGE ACT BY NON-REPORTING ISSUERS.
No annual report or proxy material has been sent to security
holders, nor are such materials anticipated to be sent, with the exception of
this Annual Report on Form 10-KSB.
-19-
<PAGE> 21
J R CONSULTING INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996
<PAGE> 22
J R CONSULTING INC.
<TABLE>
<CAPTION>
An index of the relevant Financial Statements follows: Page
<S> <C>
Report of Independent Accountants....................................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of June 30 1995 and 1996................................. F-3
Consolidated Statements of Operations for the three years ended June 30 1996............ F-4
Consolidated Statements of Cash Flows for the three years ended June 30 1996............ F-5
Consolidated Statements of Shareholders' Equity for the three years ended
June 30 1996............................................................................ F-7
Accounting Policies..................................................................... F-8
Notes to Consolidated Financial Statements.............................................. F-8
</TABLE>
F-1
<PAGE> 23
J R CONSULTING INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of J R Consulting Inc.
We were engaged to audit the accompanying consolidated balance sheets of J R
Consulting Inc. and subsidiaries as of June 30 1996, and the related
consolidated statements of operations, shareholders' equity and cashflows for
the year ended June 30 1996. These financial statements are the responsibility
of the Company's management.
The records of Prima Eastwest Model Management, Inc. ("Prima"), one of the
significant subsidiaries, do not permit the application of auditing procedures
necessary to express an opinion on the financial statements.
For the period March 1, 1996 through June 30, 1996 during which Prima formed
part of the group, the records maintained by Prima were unauditable with
respect to balances for accounts receivable from and accounts payable to
models, as explained in Note 3.
Because of the absence of reliable financial records for Prima and the
impossibility to apply the necessary auditing procedures, the scope of our work
was not sufficient to enable us to express, and we do not express, an opinion
on these financial statements.
Manchester, UK Coopers & Lybrand
31 July 1997
F-2
<PAGE> 24
J R CONSULTING INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
NOTE $'000 $'000
ASSETS
Current assets
<S> <C> <C> <C>
Cash and cash equivalents - 35
Accounts receivable:
Trade - 398
Other 5 - 388
Inventories 143
----- -----
Total Current Assets - 964
Property, plant and equipment, net of depreciation 6 - 123
Intangible assets
Goodwill & patents 7 - 3,894
----- ------
Total assets - 4,981
LIABILITIES AND SHAREHOLDERS EQUITY
Accounts payable:
Trade 8 - 1,371
Other current liabilities 9 - 660
----- -----
Total current liabilities - 2,031
Long term debt 10 - 68
------ ------
Total non-current liabilities - 68
Commitments and contingencies 13
------ ------
Total liabilities - 2,099
Shareholders' equity
Common stock, par value per share $0.04; shares authorised 100 million;
10,944,955 (1996) and 5,368,822 (1995) shares issued and outstanding 14 215 469
Additional paid-in capital less discount 14 375 4,875
Retained deficit (590) (2,462)
------ ------
Total shareholders' equity - 2,882
------ -----
Total liabilities and shareholders' equity - 4,981
====== =====
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE> 25
J R CONSULTING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED JUNE 30 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
NOTE $'000 $'000 $'000
<S> <C> <C> <C> <C>
Net sales of products and services - - 1,568
Operating costs and expenses
Cost of products and services - - 644
Selling general and administrative 2 10 2,185
Depreciation and amortisation - - 252
----- ---- -------
Total operating costs and expenses 2 10 3,081
----- ---- -------
Operating loss (2) (10) (1,513)
Other income (expense):
Interest expense, net - - (12)
Write off investment 12 - - (347)
------ ---- -------
Loss from continuing operations before income taxes (2) (10) (1,872)
Provision for income taxes 15 - - -
------ ---- -------
Net loss (2) (10) (1,872)
====== ==== =======
Net loss per share 16 $0.00 $0.00 $(0.19)
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE> 26
J R CONSULTING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED JUNE 30 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
$'000 $'000 $'000
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss - - (1,872)
Adjustment to reconcile net earnings to net cash flow from operating activities:
Depreciation and amortisation of property, plant
and equipment - - 17
Amortisation of intangibles - - 235
Write off of investment - - 347
(Increase) decrease in receivables - - 65
(Increase) decrease in prepaid expenses and
other accrued liabilities - - (95)
Increase/(decrease) in payables - - 196
Increase in inventory - - (138)
Advance to officer of subsidiary - - (237)
----- ----- -----
NET CASH OUTFLOW FROM OPERATING
ACTIVITIES - - (1,482)
INVESTING ACTIVITIES:
Capital expenditures - - (46)
Purchase of investments - - (322)
Consolidation of the opening cash balance of Benatone and Prima - - 28
----- ----- -----
NET CASH OUTFLOW FROM INVESTING ACTIVITIES - - (340)
FINANCING ACTIVITIES:
Proceeds in respect of common stock to be issued - - 775
Net proceeds from issuance of common stock - - 835
Loans from officers - - 199
Proceeds from bank loan - - 48
----- ----- -----
NET CASH FLOW FROM FINANCING ACTIVITIES - - 1,857
Net increase in cash and cash equivalents - - 35
Cash and cash equivalents at beginning of year - - -
CASH AND CASH EQUIVALENTS AT END OF YEAR - - 35
====== ===== ======
</TABLE>
F-5
<PAGE> 27
J R CONSULTING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED JUNE 30 1994, 1995 AND 1996
CONT...
<TABLE>
<CAPTION>
1994 1995 1996
$'000 $'000 $'000
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid - - 12
Income taxes paid - - -
===== ===== ======
NON CASH ASSETS AND LIABILITIES OF
ACQUISITION (Note 11):
Property and equipment - - 94
Patents - - 3,254
Inventories - - 5
Receivables - - 463
Prepaid expenses - - 12
Payables - - (670)
Accrued expenses - - (103)
Provisions - - (413)
Loans - - (426)
----- ----- ------
- - 2,216
===== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE> 28
J R CONSULTING INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED JUNE 30 1994, 1995 AND 1996
<TABLE>
<CAPTION>
Common stock issued Additional Total
paid up Retained shareholders'
capital Discounts deficits equity
Number $'000 $'000 $'000 $'000 $'000
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1 1993 3,181,224 127 524 (100) (578) (27)
Net loss - - - - (2) (2)
--------- ----- ----- ----- ----- ------
Balance at June 30 1994 3,181,224 127 524 (100) (580) (29)
Issuance of common stock 2,187,598 88 - (54) - 34
Debt waived - - 5 - - 5
Net loss - - - - (10) (10)
--------- ----- ----- ----- ----- ------
Balance at June 30 1995 5,368,822 215 529 (154) (590) -
Issuance of common stock 5,576,133 223 3,756 - - 3,979
Receipts in respect of common
stock to be issued - 31 744 - - 775
Net loss - - - - (1,872) (1,872)
--------- ----- ----- ----- ------- ------
Balance at June 30 1996 10,944,955 469 5,029 (154) (2,462) 2,882
========== ===== ===== ===== ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE> 29
J R CONSULTING INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES
The principal accounting policies followed by the Group (as defined below) and
observed in the preparation of these financial statements are summarised below:
(a) Basis of presentation
The balance sheet of J R Consulting Inc., (The "Company") and its subsidiaries
(collectively, the "Group") as of June 30 1995 and 1996 and the statements of
operations, shareholders equity and cashflows for the years ended June 30,
1994, 1995 and 1996, are presented on a consolidated basis. All significant
intercompany balances and transactions have been eliminated from the financial
statements.
Prior to the first quarter of the year ended June 30 1996, the Company reported
as a development stage company as defined in Statement of Financial Accounting
Standards No.7. Before the acquisition of Classlife Limited and subsequently
Prima Eastwest Model Management Inc. the Company devoted substantially all of
its efforts to establishing its business, and was therefore defined as a
development stage company.
(b) Acquisitions
On September 7 1995 the Company acquired, through a series of transactions, all
the issued and outstanding capital stock of Classlife Limited, a company formed
under the laws of England, in exchange for an aggregate 1,020,932 shares of the
Company's stock. Classlife Limited then changed its name to Benatone Limited,
in which name it is referred throughout these financial statements.
On March 1, 1996 the Company acquired Prima Eastwest Model Management Inc.
("Prima"), a California corporation. The Company issued 363,551 shares of its
common stock in the acquisition of Prima. Another 646,444 shares were allocated
and were held in escrow related to an earn out provision in the merger
agreement by which the shareholders of Prima can receive additional shares of
the Company based on Prima's operating result. However no such contingent
consideration will become payable.
In addition, on March 1 1996 the Company issued 1,029,526 shares in exchange
for debts due to the previous shareholders of Prima amounting to $2,649,000.
(c) Members of the Group
- Benatone Limited and its subsidiaries, 100% owned (United
Kingdom)
Benatone holds patents in the design of screwless electrical
plugs. Plugs are manufactured to the company's design in the low cost
countries and imported to the UK for sale to the lighting industry
and other electrical appliance manufacturers.
F-8
<PAGE> 30
J R CONSULTING INC.
- Prima Eastwest Model Management Inc., 100% owned (USA)
Prima is a model agency in Los Angeles providing management
services to models and talents in the entertainment and beauty
products industries, primarily in California. It also provides
related studio rental services in California.
2 GOING CONCERN
The consolidated statement of operations, on page F-4 shows that the Group
incurred a loss of $1,872,000 during the year. The consolidated balance sheet on
page F-3 shows that current liabilities exceeded current assets by $1,067,000.
The directors are in negotiation with existing and potential new shareholders
with a view to raising funds for the Group. Also, the directors are negotiating
with the vendors of Prima to reduce the consideration paid for that subsidiary
and to recover some of the funds defrayed in meeting that subsidiary's
liabilities since acquisition. These negotiations are not sufficiently advanced
for their outcome to be ascertained. However, the directors are confident that
the negotiations will result in sufficient funds being raised to meet the
Group's requirements for the foreseeable future and accordingly they have
prepared the financial statements on the basis that the Group is a going
concern. Nevertheless, the uncertainty over the final outcome of the
negotiations is fundamental to the preparation of the financial statements.
3 PRIMA FINANCIAL STATEMENTS
As explained in Note 1, the Company acquired Prima on March 1 1996. The
existing management of Prima contracted to provide the Company with audited
financial statements up to December 31 1995. It became apparent to the officers
of the Company that the accounting records of Prima had not been properly
maintained and that these financial statements would be delayed. The officers
sought an extension to the Company's filing requirements. The Prima management
has been changed and every effort has since been made to reconstruct the
accounting records from January 1 1996. Despite these efforts, it has not been
possible to reconstruct all the records fully, the result of which is that:
(a) certain expenditure incurred during the period to June 30 1996
cannot be validated or substantiated, and
(b) it has not been possible to determine accurately the amounts
payable to, or receivable from, models as at June 30 1996
In their report, the auditors confirm that because of the significance of these
matters, the scope of their work was restricted to the extent that they cannot
express an opinion on the Group's financial statements.
F-9
<PAGE> 31
J R CONSULTING INC.
The Company is continuing the reconstruction of Prima's accounting records to
June 30, 1996.
Improvements have been made to the accounting records compatible with the
existing systems. The officers are seeking to upgrade or change systems as soon
as it is practicable.
4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING POLICIES
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company's wholly owned subsidiaries.
All intercompany transactions and balances have been eliminated.
ACCOUNTING 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes unrestricted cash in banks and highly liquid
investments with maturities of less than three months when purchased.
INVESTMENTS
Investments as to which the Group exercises significant influence are accounted
for by the equity method. Other investments are carried at the lower of cost
and net realisable value.
INVENTORIES
Inventories are stated at the lower of cost or market. The Company uses the
FIFO method for determining costs. Provision is made for slow moving and
obsolete inventory if necessary.
F-10
<PAGE> 32
J R CONSULTING INC.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Property and equipment are
depreciated using the straight line method over the estimated useful life of
the assets.
GOODWILL AND OTHER INTANGIBLES
Goodwill arising on acquisitions is determined, in general, as the difference
between the fair value of the consideration and the fair values of the
separable assets and liabilities acquired.
Goodwill and other intangibles are amortised on the straight line method over
15 years. The Company reviews its intangible assets each year, to confirm that
they retain economic value and that they continue to justify investment and
support. The economic life attributable to goodwill is determined by the
officers having regard to the particular markets in which the Company operates.
In extreme circumstances, where there has been a permanent impairment in the
economic value of goodwill, the reduction in value is written off through the
income statement.
REVENUE RECOGNITION
Revenues are recorded at the time of the shipments of the products or
performance of the services.
RESEARCH AND DEVELOPMENT COSTS
Costs associated with the development of new products and changes to products
are charged to operations as incurred. Research and Development costs in the
year amounted to $91,000 (1995: $nil, 1994: $nil).
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No.109 "Accounting for Income Taxes". This statement
requires that deferred tax assets and liabilities are determined based on the
temporary differences between the financial reporting basis and the tax basis
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of foreign subsidiaries are translated into US
dollars at fiscal year end exchange rates. Income and expense items are
translated at average exchange rates prevailing during the fiscal year. The
resulting translation adjustments are recorded as a component of shareholders'
equity.
LOSS PER SHARE
Primary net loss per share is based on the weighted average number of shares of
common stock outstanding during the year.
F-11
<PAGE> 33
J R CONSULTING INC.
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS 128 'Earnings Per Share' is effective for financial statements issued for
periods ending after December 15 1997. Under this standard, the Company will be
required to present basic and diluted earnings per share. Management believes
the adoption of this standard will have no material effect on the earnings per
share of the Company.
Statement of Financial Accounting Standards No. 125 'Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities', requires
that entities recognise the financial and servicing assets they control and
liabilities they have incurred, and derecognise assets when control has been
surrendered, and liabilities when extinguished. SFAS 125 is required to be
adopted for transactions entered into after December 31 1997. The Company does
not expect the adoption of this Statement to have a significant impact on its
financial statements.
Statement of Financial Accounting Standards No. 130 requires companies to
display comprehensive income with the same prominence as other financial
statements. Adoption of this pronouncement will not have a material effect on
the Company's financial position or results of operations.
Statement of Financial Accounting Standards No. 131 requires companies to
prepare certain disclosures per operating segment. An operating segment is
defined as the component whose results are regularly reviewed by the
enterprise's chief operating decision maker to make decisions about resources
to be allocated to the segment and assess its performance. Adoption of this
pronouncement will not have a material effect on the Company's financial
position or result of operations.
5 OTHER RECEIVABLES
<TABLE>
<CAPTION>
1995 1996
$'000 $'000
<S> <C> <C> <C> <C>
Advance to officer of subsidiary (a) - 237
Other receivables - 117
Prepayments - 34
----- -----
Total other receivables - 388
===== =====
</TABLE>
(a) The advance to an officer of a subsidiary was repaid after the
year end.
F-12
<PAGE> 34
J R CONSULTING INC.
6 PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1995 1996
$'000 $'000 Estimated useful lives
<S> <C> <C> <C>
Motor vehicle - 30 4 years
Equipment - 90 5-10 years
Leasehold improvement - 20 5 years 20
----- -----
- 140
Less: accumulated depreciation - 17
----- -----
- 123
===== =====
</TABLE>
Depreciation charged to income in the year ended June 30 1995 and the year
ended June 30 1996 was nil and $17,000 respectively.
7 INTANGIBLE ASSETS
The Company acquired patents held in Benatone. In addition, goodwill arising in
respect of the acquisitions during the year amounted to $875,000 (Note 11).
<TABLE>
<CAPTION>
PRIMA BENATONE TOTAL
GOODWILL GOODWILL GOODWILL PATENTS TOTAL
$'000 $'000 $'000 $'000 $'000
<S> <C> <C> <C> <C> <C>
On acquisition 875 - 875 3,254 4,129
Amortisation (18) - (18) (217) (235)
----- ----- ----- ----- -----
857 - 857 3,037 3,894
</TABLE>
8 TRADE PAYABLES
<TABLE>
<CAPTION>
1995 1996
$'000 $'000
<S> <C> <C>
Trade payables - 866
Other payables - 68
Accruals - 437
----- -----
- 1,371
===== =====
</TABLE>
F-13
<PAGE> 35
J R CONSULTING INC.
9 OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
1995 1996
$'000 $'000
<S> <C> <C>
Bank loans - 48
Loans from officers - 199
Provision for legal claims - 413
----- -----
- 660
===== =====
</TABLE>
The loans from officers represents advances made by officers of the Company
which are non interest bearing and have no definite repayment terms.
10 LONG TERM DEBT
<TABLE>
<CAPTION>
1995 1996
$'000 $'000
<S> <C> <C>
Other loans - 68
===== =====
</TABLE>
The other loans are unsecured, interest free and repayable on demand after July
1 1997.
11 ACQUISITIONS
<TABLE>
<CAPTION>
PRIMA BENATONE TOTAL
<S> <C> <C> <C>
Fair value of net assets acquired $'000 $'000 $'000
Property and equipment 38 56 94
Patents - 3,254 3,254
Inventories - 5 5
Receivable 463 - 463
Prepaid expenses 12 - 12
Security deposits 28 - 28
Accounts payable (670) - (670)
Accrued expenses (103) - (103)
Provision (413) - (413)
Loans - (252) (252)
Overdraft (174) - (174)
----- ----- -----
(819) 3,063 2,244
Goodwill 875 - 875
Consideration 56 3,063 3,119
===== ===== =====
</TABLE>
F-14
<PAGE> 36
J R CONSULTING INC.
<TABLE>
<CAPTION>
CONSIDERATION
<S> <C>
The consideration comprised: $'000
Prima
The issue of 363,551 shares, at $0.04 for shares in Prima 15
The issue of 1,029,526 shares, at $0.04 for debts due from Prima
to its previous shareholders 41
-----
56
Benatone
The issue of 1,020,932 shares, at $3.00 3,063
-----
3,119
=====
</TABLE>
In the case of Prima, further consideration may have been payable dependent on
Prima's financial performance, upto a maximum of $38,000 made up of 961,538
shares at $0.04 each. Also, in respect of Benatone, further consideration may
have been payable dependent on Benatone's financial performance, up to a
maximum of $177,000 made up of 58,900 shares at $3.00 each. In each case, the
Company is confident that no further consideration will be paid and none has
been included in the summary of consideration set out above.
12 INVESTMENT
On September 12 1996 the Company acquired 21,390 Class B Ordinary shares of
Autokraft Limited, a company registered in the United Kingdom, representing 20%
of the equity of that company, but 50% of the voting rights, in exchange for
632,585 shares of common stock of the company. The Company also entered into an
agreement to purchase further shares in Autokraft but before this was
completed, a Receiver was appointed. In anticipation of Autokraft being wound
up with no distribution to shareholders, the value of the investment, which was
reassessed at $347,000 as shown below, has been fully written off in these
financial statements:
<TABLE>
<CAPTION>
$'000
<S> <C>
Issue of 632,585 shares at $0.04 (note 14) 25
Cash
322
-----
347
=====
</TABLE>
F-15
<PAGE> 37
J R CONSULTING INC.
13 COMMITMENTS AND CONTINGENCIES
(a) Leasing arrangements
Prima leased office space under a non-cancellable operating lease
which expired in May 1996. Prima subsequently moved its office
facilities and leases space on a month to month basis without a formal
written lease agreement. Prima also leases certain equipment under
non-cancellable operating leases which expire in June 1997. Future
minimum payments of equipment under non-cancellable operating leases
as of June 30, 1996 amounted to $2,832. The rent expense for the four
month period ended June 30, 1996 was $146,811 (1995 and 1994: $ nil).
Prima is currently obligated under a non-cancellable operating lease
which it entered into in September 1996 and runs through to October
2007. The lease payments are subject to increases in accordance with
the lease agreement based on fixed percentages and prevailing market
rates in the future. Benatone entered into a non-cancellable operating
lease for premises in February 1997 that runs for three years. This
occurred after the previous cancellable lease arrangement had expired.
Future minimum rental commitments for premises under such
non-cancellable operating leases for the group are as follows:
<TABLE>
<CAPTION>
JUNE 30 AMOUNT
$'000
<S> <C> <C>
1997 91
1998 96
1999 101
2000 100
2001 98
Thereafter 621
-----
Total 1,107
=====
</TABLE>
(b) Royalty
Under an agreement dated September 7, 1995 the Group has a commitment
to pay royalties of $0.0388 per electrical plug sold, continuing
until the year 2011.
F-16
<PAGE> 38
J R CONSULTING INC.
(C) Litigation
Prima is a defendant in litigation with a financial lender (the
"Lender") which was filed in February 1997. The Lender is claiming
Prima is liable to settle debt amounting to $413,151 being the
balance on a loan to a previous officer of Prima and which Prima had
guaranteed. Under the arrangements for the acquisition of Prima, the
previous officer had undertaken to settle the loan but has defaulted
on the agreement. Prima is vigorously defending the lawsuit but
provision has been made in the financial statements to the extent
that the officers believe appropriate.
The Company and Prima are also vigorously defending litigation
brought by one of the co-defenders in the above lawsuit, in respect
of the same matter.
14 COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
<TABLE>
<CAPTION>
DISCOUNT
ON SHARES
COMMON ADDITIONAL ISSUED
STOCK PAID-IN BELOW PAR
AT PAR CAPITAL VALUE
$'000 $'000 $'000
<S> <C> <C> <C>
At July 1 1995, 5,368,822 shares 215 529 (154)
1,020,932 shares issued on acquisition of Benatone @ $3.00 (a) 41 3,022 -
632,585 shares issued for the investment in Autokraft @ $0.04 (b) 25 - -
363,551 shares issued on acquisition of Prima @ $0.04 (b) 15 - -
1,029,526 shares issued for debt due from Prima @ $0.04 (b) 41 - -
Shares issued for cash
2,179,539 at $0.25 on September 15 1995 87 458 -
200,000 at $0.70 on March 6 1996 8 132 -
150,000 at $1.00 on April 2 1996 6 144 -
----- ----- -----
At June 30, 1996 10,944,955 shares 438 4,285 (154)
775,000 shares to be issued @ $1.00 (c) 31 744 -
----- ----- -----
469 5,029 (154)
===== ===== =====
</TABLE>
(a) The price of $3.00 per share for the acquisition of Benatone represents
the market value at the time of issue.
(b) The investment in Autokraft and the acquisition of Prima were completed at
contract prices of $3.00 and $2.60 per share respectively. However, the
Company has taken the opportunity of reassessing the fair value of the
investment and of Prima and has attributed par value of $0.04 per share in
these financial statements.
F-17
<PAGE> 39
J R CONSULTING INC.
(c) The Company has received cash in respect of shares which had not been
formally issued at June 30, 1996 as follows:
<TABLE>
<CAPTION>
$'000
<S> <C>
100,000 at $1.00 on December 22 1995 100
500,000 at $1.00 on March 5 1996 500
50,000 at $1.00 on April 29 1996 50
100,000 at $1.00 on April 29 1996 100
25,000 at $1.00 on June 20 1996 25
-----
775
=====
</TABLE>
15 TAXATION
No tax payable arises in respect of the loss for the year. Tax losses available
for carry forward to offset against future operating profits amount to
approximately $1,681,000, including $291,000 in the United Kingdom. These give
rise to a potential deferred tax asset of $490,000. In view of the results for
the year and the uncertainty of benefit being derived from this asset in the
foreseeable future, a full valuation allowance has been made in respect of this
asset.
<TABLE>
<CAPTION>
$'000
<S> <C> <C>
Deferred tax asset
Losses 490
Less valuation allowance (490)
-----
-
=====
</TABLE>
The Group has net operating loss carry forwards of approximately $1.4 million
in the USA which expire in the years 2009 through 2011.
16 NET LOSS PER SHARE
The primary net loss per share is calculated on the basis of the loss for the
year of $1,872,000 and a weighted average number of shares issued for the year
of 9,778,795 which includes the 775,000 shares to be issued (Note 14).
17 RELATED PARTY TRANSACTIONS
During the year the Group incurred legal advisory costs of $20,000 payable to a
company in which G Harris, a director of the Company, has a material interest.
F-18
<PAGE> 40
J R CONSULTING INC.
During the year the Group received cash advances, which remained outstanding at
the financial year end, from:
<TABLE>
<CAPTION>
RELATED PARTY RELATIONSHIP $'000
<S> <C> <C>
D Lean Director 96
P Zachariou Director 103
Minden Business Corporation D Lean has a power of attorney 68
</TABLE>
18 UNAUDITED PROFORMA INFORMATION
The proforma information set out below shows the Group's results for the two
years ended June 30, 1995 and 1996 incorporating Prima and Benatone as if they
had been part of the Group throughout that period. The figures include the
audited report results of the Company for the year ended June 30, 1995 together
with the unaudited results of Prima for the two years ended June 30, 1995 and
1996 and the audited results of Benatone from the date of its incorporation
through June 30, 1996.
<TABLE>
<CAPTION>
1995 1996
(UNAUDITED) (UNAUDITED)
$'000 $'000
<S> <C> <C> <C>
Net Sales 1,643 2,557
Operating costs (2,108) (4,196)
------- --------
Operating loss (465) (1,639)
======= ========
Net loss per share $ (0.09) $ (0.17)
</TABLE>
F-19
<PAGE> 41
J R CONSULTING INC.
19 SEGMENTAL INFORMATION BY SEGMENT AND GEOGRAPHIC SECTOR
The sales, profit before interest and tax and net operating assets of the
various activities of the Group are set out below:
(a) Sales
<TABLE>
<CAPTION>
1994 1995 1996
$'000 $'000 $'000
<S> <C> <C> <C> <C>
SEGMENT
Model agency - - 615
Electrical accessories - - 953
----- ----- -----
- - 1,568
===== ===== =====
GEOGRAPHIC SECTOR
North America - - 615
United Kingdom - - 953
----- ----- -----
- - 1,568
===== ===== =====
</TABLE>
(b) Operating income before interest and tax
<TABLE>
<CAPTION>
1994 1995 1996
$'000 $'000 $'000
<S> <C> <C> <C> <C>
SEGMENT
Model agency - - (579)
Electrical accessories - - (336)
Group overheads (2) (10) (598)
----- ----- ------
(2) (10) (1,513)
===== ===== ======
GEOGRAPHIC SECTOR
North America (2) (10) (1,177)
United Kingdom - - (336)
----- ----- ------
(2) (10) (1,513)
===== ===== ======
</TABLE>
F-20
<PAGE> 42
J R CONSULTING INC.
<TABLE>
<CAPTION>
1994 1995 1996
$'000 $'000 $'000
<S> <C> <C> <C> <C>
SEGMENT
Model agency - - 24
Electrical accessories - - 12
Group overheads - - 216
----- ----- -----
- - 252
===== ===== =====
GEOGRAPHIC SECTOR
North America - - 240
United Kingdom - - 12
----- ----- -----
- - 252
===== ===== =====
</TABLE>
(d) Net asset/liabilities
<TABLE>
<CAPTION>
1995 1996
$'000 $'000
<S> <C> <C> <C>
SEGMENT
Model agency - (3,247)
Electrical accessories - (332)
Group - 6,461
----- ------
- 2,882
===== ======
GEOGRAPHIC SECTOR
North America - 3,214
United Kingdom - (332)
----- ------
- 2,882
===== ======
</TABLE>
F-21
<PAGE> 43
J R CONSULTING INC.
(e) Total assets
<TABLE>
<CAPTION>
1995 1996
$'000 $'000
<S> <C> <C> <C>
SEGMENT
Model agency - 1,442
Electrical accessories - 360
Group - 3,179
----- -----
- 4,981
===== =====
GEOGRAPHIC SECTOR
North America - 4,621
United Kingdom - 360
----- -----
- 4,981
===== =====
</TABLE>
39 POST BALANCE SHEET EVENT
In April 1997 the Company consented to the entry against it of a permanent
injunction obtained by the SEC for the Company's failure to file reports on a
timely basis.
F-22
<PAGE> 1
EXHIBIT 21.1 - Subsidiaries of Registrant
Benatone Limited (a United Kingdom corporation)
Prima Eastwest Model Management, Inc. (a California corporation)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 35
<SECURITIES> 0
<RECEIVABLES> 786
<ALLOWANCES> 76
<INVENTORY> 143
<CURRENT-ASSETS> 964
<PP&E> 123
<DEPRECIATION> 17
<TOTAL-ASSETS> 4,981
<CURRENT-LIABILITIES> 2,031
<BONDS> 68
0
0
<COMMON> 469
<OTHER-SE> 2,413
<TOTAL-LIABILITY-AND-EQUITY> 4,981
<SALES> 953
<TOTAL-REVENUES> 1,568
<CGS> 644
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (1,525)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,525)
<DISCONTINUED> 0
<EXTRAORDINARY> (347)
<CHANGES> 0
<NET-INCOME> (1,872)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
