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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, 1997
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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.)
180 Varick Street, 13th Floor, New York, New York 10014
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER: (212) 807-6777
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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 EXCHANGE 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 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 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: $2,210,000
State the aggregate market value of the voting and non-voting common 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, as of a
specified date within the past 60 days: $9,603,683 as of June 30, 1997, based on
a price of $1.5625 per share.
State the number of shares outstanding of the issuer's classes of common equity,
as of the latest practicable date: 11,044,955 shares of Common Stock, $.04 par
value per share, as of June 30, 1997.
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. From its
inception through September 7, 1995, the Company generated nominal revenues and,
prior to September 7, 1995, the Company did not actively engage in business for
at least one fiscal year.
Since September 7, 1995 the Company has been engaged in business
through two subsidiary companies. They are Benatone Limited, a company formed
under the laws of England ("Benatone"), and Prima Eastwest Model Management,
Inc, a company formed under the laws of California ("Prima").
Benatone, through its subsidiaries, is engaged in the manufacture
and sale of screwless electrical accessories, including electrical plugs,
rewireable and non-rewireable, and the assembly of small electrical accessories
for third party manufacturers in the United Kingdom.
Prima primarily operates a modeling agency in Los Angeles,
California.
FISCAL 1996 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, then known as Classlife Limited, in exchange for an aggregate
1,020,932 shares of the Company's common stock, $.04 par value per share (the
"Common Stock").
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, aluminum bodied sports cars. Autokraft went into
administrative receivership on March 7, 1996, and the receivers have indicated
to the Company that there will not be any liquidating dividend to Autokraft's
shareholders.
Furthermore, on March 1, 1996, the Registrant acquired, for
1,393,077 shares of the Common Stock, all of the issued and outstanding capital
stock of, and a debt receivable from, Prima.
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BENATONE LIMITED
PRODUCTS
Benatone manufactures and distributes the patented "Simplug"
screwless rewireable electrical 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 electrical plug. The Simplug is deemed safer than the conventional
electrical plug in use. It is recognized that alternating current has the effect
of loosening screw type fixings. This does not occur with the Simplug.
Benatone manufactures a specifically designed jig to enable fast
wiring of the Simplug, which is sold separately to commercial users. Benatone
has further enhanced the jig by enabling it to be attached to an electrical
tester, allowing the operator to wire the Simplug and test the complete assembly
in one motion, thus saving time and labor for the manufacturer.
The product is suited for 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
particularly 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, for example, extension
sockets with variable length cable for a United Kingdom manufacturer of such
products.
Benatone further assembles table lamps for United Kingdom sports
clubs such as Manchester United and Liverpool under license. These products are
now being distributed in Argos, a major sales warehouse. In addition, Benatone
also has other smaller electrical assembly operations.
MARKETS
The Simplug is sold principally to the luminaire industry in
England, Scotland, Ireland and 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
lighter and less brittle materials that should result in a reduction in
manufacturing costs. The plug will also be more consumer friendly and Benatone
will seek to sell the same in the retail markets.
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Benatone has also developed a non-rewireable 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 products. This is an ongoing process and new
developments will be announced as they are completed and ready for production.
Benatone is developing its own range of table lamps for sale to
football, rugby and cricket clubs. It aims to produce these lamps not only for
the United Kingdom market but also world-wide, although there are no assurances
that this will occur. These lamps will carry the logos of the respective teams
and will be complete with shades designed to the specifications of the
respective sports clubs. The logos are under license from the appropriate clubs,
thus limiting the number of manufacturers in this specialized market. Further,
Benatone is also developing a range of casual table lamps for the domestic home
market.
MANUFACTURING
The Simplug is manufactured in China to full British Standards
Institute ("BSI") requirements. 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 manufacturers of
electrical goods requiring the Simplug for their product. Benatone is actively
seeking a manufacturer to produce its non-rewireable plug and current Simplug
rewireable plug.
The sports and table lamps will be assembled in Benatone's factory
in Blackburn and will utilize the current skills of the workforce that is
assembling sports lamps for another manufacturer. Blackburn is situated in the
industrial heartland of the North of England and its location benefits from a
large pool of low cost and skilled labor. The workforce will increase as demand
for the two new products increases, although there are no assurances that this
will occur.
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 the total sold. The Simplug can be assembled
to cable using Benatone's unique jig at least three times faster than assembling
with screw type plug. Further, in the luminaire industry, the product being
assembled can be electrically tested at the same time. Management believes that
these savings on time and labor make the product unique and more than cost
effective to industry.
Many competitors are producing non-rewireable plugs and this type
of plug is gaining favor with many manufacturers. In this respect, Benatone
anticipates that in the future its own non-rewireable plug will gain a foothold
in the industry, although there are no assurances that this will occur.
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Presently, Benatone seeks to compete on the quality of its product.
The new generation of Simplug currently being developed should enable Benatone
to compete more directly on price.
With only a few manufacturers of sports table lamps, the
competition for Benatone in this product market is limited. Furthermore,
Benatone is concentrating on those clubs which do not currently have this type
of lamp. These sports lamps carrying the club logo may only be assembled and
distributed under license from the particular club.
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-rewireable plug are patented.
REGULATION
Benatone is ISO 9001 registered with BSI. It carries out research
and development, manufacturing 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-rewireable plug has BSI 1363A
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.
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 submission for
testing with the BSI. During the fiscal year ended June 30, 1997, Benatone spent
$28,000 on research and development activities. During the fiscal year ended
June 30, 1996, Benatone spent $91,000 on research and development activities.
Benatone intends to contract out its research and development and to close its
own research department, although there is no assurance this will occur.
EMPLOYEES
At June 30, 1997 Benatone had eight full time employees. None of
the employees are 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.
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SEASONAL FLUCTUATIONS
The sale of Benatone's products in the luminaire industry is
seasonal. The period from August to March are strong buying periods for the
electrical plug and the sports table lamps, particularly football and rugby
union club ranges. In addition, table lamps are expected to be strong in the
Christmas season. By seeking to sell the Sports Range of lamps to both cricket
and rugby league clubs, which are active in the spring and summer months,
Benatone hopes to reduce the seasonality of its products over the whole year.
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, catalogue 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 in the heart of Hollywood. In July 1996,
encourage the growth of the studio, Prima 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, make up 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 entertainment industry and
conversely to expand the exposure and portfolio of artists currently 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,
catalogues; movie production companies such as Tri-Star, Warner Brothers and
Columbia Pictures; record companies such as EMT and
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Polygram and general industry such as Calvin Klein and Levi's. Major new clients
include 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 divisions 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
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 world-wide 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 world-wide 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 proposed introduction of the Talent and Commercial division at Prima
should ensure the highly competitive position of Prima in the entertainment and
modeling industry, particularly in the Los Angeles area, although there is no
assurance that this will continue. 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 major firm, which is
located by the ocean and is not as centralized as the Studio division. One of
the Studio division's principal assets is its location in the heart of
Hollywood. It also offers three separate studio areas; make up; 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 a year-round scouting
policy with individual scouts travelling around the United States, Europe
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(both central and eastern) and South America in search of new talent which Prima
can promote not only in its Print division, but also intends to promote 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 to record companies and movie production
firms and is not linked solely to the geographic Los Angeles market. This wide
base in both customer and talent enables Prima to meet the demand of its
industry, and it can utilize this base to expand its operations.
Management believes the Profile division, which serves all of the
model (not just Prima), movie and celebrity market, has shown excellent growth.
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, 1997, Prima had 12 full time employees. None of the
employees is subject to any collective bargaining agreement. Prima considers its
relationship with its employees to be good.
SEASONAL FLUCTUATIONS
The market demand for talent in which Prima operates is controlled
by the requirements of the client base. Prima services a variety of clients. As
a result, if one group of clients is experiencing a cyclical downturn, other
clients are typically experiencing a cyclical upturn. It has always been an
objective of the Company to take anti-cyclical measures and, without moving into
other industries, ensuring that the client base covers a wide range of
industries has been the most practical way of achieving this objective. This
does not guarantee that Prima does not experience fluctuations in its level of
activity, but it does mean that most of the time there is no discernable cycle
during the year. An exception to this is the midsummer period when a large
proportion of the clients reduce their level of activity due to a peak in annual
leave being taken by employees.
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.
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Benatone moved its operations from the premises located at Unit 19,
Glenfield Park, Philips Road, Blackburn, Lancashire, England, which consisted of
5,000 square feet of general industrial property with ancillary office on March
1, 1997. Its new premises are based at Units 13/16 Oak Street, Blackburn,
England. This consists of 7,000 square feet of general industrial space
including storage and ancillary office space plus an additional 2,000 square
feet of parking. It holds the premises pursuant to a lease which expires on
February 28, 2000 at a fixed rent of $675 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. ("LISB") 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 which 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 (IS). 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 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 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 of a Final Judgment of Permanent
Injunction against it 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
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its Form 10-KSB for the fiscal year ended June 30, 1996 and its Form 10-QSBs for
the fiscal quarters ended March 31, September 30, and December 31, 1996. The
judgement 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 was not able to file the reports listed in the
judgment by May 15, 1997, the Company did file its Form 10-KSB for the fiscal
year end June 30, 1996, on October 1, 1997; and its Form 10-QSBs for the fiscal
quarters ended September 30, 1996, December 31, 1996 and March 31, 1997, on
October 20, 21 and 21, 1997, respectively.
Mr. Francis Vause has initiated legal proceedings against the
Company. He is claiming damages for breach of a consultancy agreement and
non-payment of royalties. Management of the Company believes that the
consultancy agreement was legally terminated for cause and intends to defend
this action vigorously. This matter is currently in the preliminary stages.
Management does not believe that the Company will incur significant expenses in
connection with the defense of this matter, although no assurance can be given
that the Company will prevail in this matter.
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. 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.
<TABLE>
<CAPTION>
High bid Low bid
<S> <C> <C>
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
High bid Low bid
July 1, 1996 - September 30, 1996 $3.75 $2.125
October 1, 1996 - December 31, 1996 2.625 0.50
January 1, 1997 - March 31, 1997 2.40 0.75
April 1, 1997 - June 30, 1997 2.125 0.75
</TABLE>
As of June 30, 1997, the Company had 1,196 holders of record of its
Common Stock.
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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
Except for the historical information contained herein, the matters
discussed in this item are forward looking statements involving risks and
uncertainties which may cause actual results to materially differ. Those risks
and uncertainties include but are not limited to economic, competitive, industry
and market factors affecting the Company's operations, markets, products, prices
and other factors discussed in the Company's filings with the SEC.
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED JUNE 30, 1996 AND JUNE 30, 1997
The fiscal year ended June 30, 1996 was the first year the
Registrant was actively engaged in business under the new management. It was a
year of acquisitions when the Company actively sought to acquire companies. Most
companies available at an acceptable price were in financial difficulties but
with the potential to become very profitable. The fiscal year ended June 30,
1997 was one of consolidation and working to stop the losses of the companies
acquired by the Registrant in the previous year. This has had a measure of
success as shown by the results of the Company, although it is only the
beginning. The full potential of these subsidiary companies has not yet been
realized. This can only be expected over the forthcoming years, and there is no
assurance that the full potential will be realized.
The Registrant incurred an operating loss of $863,000 for the
fiscal year ended June 30, 1997, of which $374,000 is attributable to the
operations of Benatone, $267,000 is attributable to the operations of Prima and
the balance to corporate. It had net sales of $2,210,000, $1,033,000 of which
are attributed to Benatone and $1,177,000 of which are attributed to Prima.
These were the results for the first full financial year the operating companies
were owned by the registrant.
Benatone's plug sales were less than expected and will continue to
disappoint until the new plug for the retail market is BSI approved and a
manufacturer of the non-rewireable plug at a competitive cost can be found. The
first step in this work was finally realized in February 1998 when the new plug,
but with only partially new materials, passed the BSI tests. The final test work
with all the new materials should be carried out early in the next fiscal year.
The assembly work performed on a contract basis has suffered from lower cost
work from the less-developed countries but Benatone is confident its own range
of products will be successful, although there is no assurance of this.
Prima was extremely successful in reducing its costs but the sales
failed to show any significant improvement. This was primarily as a result of
the nearly 100% turnover in booking agents suffered by Prima but this has now
stabilized and a significant improvement is forecast in sales during the
forthcoming years to make this a very successful talent agency, although there
is no assurance that this will happen.
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RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1996
Prior to September 7, 1995 the Registrant was not actively engaged
in any business.
The Registrant incurred an operating loss of $1,342,000 for the
fiscal year ended June 30, 1996, of which $338,000 is attributable to the
operations of Benatone, $611,000 is attributable to the operations of Prima and
the balance to corporate. The Company had net sales of $1,536,000, $953,000 of
which are attributed to Benatone and $615,000 of which are attributed to 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 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.
POST BALANCE SHEET DATE EVENTS
At the end of November, 1997, the Studio was sold to Quixote. The
Studio was acquired as part of the purchase of the talent agency of Prima on
March 1, 1996, and at that time it had equipment valued at nearly $30,000. Since
then, Prima invested an additional $25,000 in the Studio. The Studio was sold
for $329,000, of which $235,000 was paid by the end of the first quarter of 1998
with the remainder to be paid over 1998 and 1999 with interest.
On January 5, 1998, a talent agency operating under the name of Q
Management, Inc. was started in New York. This agency shall be 81% owned by the
Company.
TRENDS AND UNCERTAINTIES
BENATONE
Benatone is seeking to lower its operating expenses while expanding
and increasing its customer base and operating revenues. Benatone continues to
seek BSI approval for its new generation of durable electrical plug. It is also
focusing on the assembly and sale of its own product range of sports and casual
table lamps for both domestic and foreign markets. However, increased labor
costs and marketing expenses will occur in future periods as Benatone attempts
to enter the new field of lighting accessories. The continuation of obtaining
additional types of business and markets is uncertain and the continued success
of any of Benatone's new marketing strategies for generating revenue is
uncertain.
-11-
<PAGE> 13
As a result of Benatone failing to reach forecasted sales for the
fiscal year, the Registrant is continuing discussions with the seller 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 seller.
PRIMA
Prima is seeking to expand and increase its customer base and
operating revenues. In doing so it has increased its administrative expenses
which, together with overhead, are likely to increase in future periods. The
continuation of obtaining additional types of business and markets is uncertain
and the continued success of any of Prima's new marketing strategies for
generating revenue is uncertain.
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 continuing 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.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Registrant had a working capital deficit
of $1,299,000. The registrant has no current plans for future acquisitions
during the fiscal year ending June 30, 1998, and beyond. However, the Registrant
opened a talent agency in New York on January 5, 1998 that will require capital
expenditure for refurbishment of rented office space, and this is expected to be
approximately $150,000. In addition, the Registrant plans to acquire new
computers and computer software at both the Los Angeles and New York offices,
and this is expected to be approximately $50,000 including installation. The
Registrant plans to consolidate its existing operations and establish them on a
profitable basis as a platform for future growth. The New York based talent
agency forms part of this plan. 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 the sale of
the Studio, 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, 1997, 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.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements are attached to this Report.
In the Financial Statements attached to the Report for the fiscal
year ended June 30, 1996, the accounting problems encountered at Prima caused
Coopers & Lybrand, the Registrant's 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 had 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
-12-
<PAGE> 14
Registrant (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.
The audited financial statements for Prima required by the
acquisition agreement were not delivered by the former Chief Executive Officer
and majority shareholder and not until the first quarter of 1997 did the
auditors engaged by the former majority shareholder of Prima inform the
Registrant 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. The reconstruction of
those records is now completed allowing the audit to be completed and the
auditors to express an opinion. 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.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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,
1997, with respect to the Directors and Executive Officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Peter Zachariou 36 President, Chairman of the
Board and Treasurer
Gabriel Harris 45 Secretary and Director
David Lean 50 Director
</TABLE>
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
-13-
<PAGE> 15
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, 1997.
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.
-14-
<PAGE> 16
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, 1997, 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.
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OF COMMON STOCK PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) OWNED (2)
- ------------------- ---------------------- ---------
<S> <C> <C>
Peter Zachariou 4,897,598 44.7%
Units 13-16 Euro Trading
Estate,
Oak Street
Blackburn BB1 6Pl
Gabriel Harris 0 0%
Units 13-16 Euro Trading
Estate,
Oak Street
Blackburn BB1 6Pl
David Lean 1,000 *
Units 13-16 Euro Trading
Estate,
Oak Street
Blackburn BB1 6Pl
Edward T. Stein 634,942 5.8%
201 N. Service Road
Melville
New York 11747
Brian Angliss 632,585 5.8%
Vickers Drive
Brooklands Industrial Park
Weybridge, Surrey
England
Francis Vause 568,332 5.2%
21 Hayfield
Beardwood
Blackburn
Lancashire, BB2 7BP
England
All officers and Directors
As a group (3 persons) 4,898,598 44.8%
</TABLE>
-15-
<PAGE> 17
* Less than 1%
(1) Based upon 11,044,955 shares of Common Stock outstanding as of June 30,
1997.
(2) Mr. Zachariou is the sole shareholder and a principal of Havilland Ltd.
the holder of record of these shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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, have 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 at June 30, 1997, were $116,000, $97,000 and
$68,000, respectively. The outstanding aggregate amount of such advances as at
June 30, 1997 were $210,000.
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 Enterprise 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
- --------------------
(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-K 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.
-16-
<PAGE> 18
(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.
(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, 1997.
-17-
<PAGE> 19
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: May 15, 1998 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.
SIGNATURE TITLE DATE
/s/ Peter Zachariou
- -------------------
PETER ZACHARIOU President/Principal May 15, 1998
Executive and Financial
Officer and Director
- -------------------
GABRIEL HARRIS Secretary and Director May , 1998
--
/s/ David Lean
- --------------
DAVID LEAN Principal Accounting May 15, 1998
Officer and Director
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.
-18-
<PAGE> 20
J R CONSULTING INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1997
<PAGE> 21
J R CONSULTING INC.
<TABLE>
<CAPTION>
<S> <C>
An index of the relevant Financial Statements follows: PAGE
Report of Independent Accountants........................................................ F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of June 30, 1996 and 1997................................. F-3
Consolidated Statements of Operations for the three years ended
June 30, 1997............................................................................ F-4
Consolidated Statements of Cash Flows for the three years ended
June 30, 1997............................................................................ F-5
Consolidated Statements of Shareholders' Equity for the three years
ended June 30, 1997...................................................................... F-7
Accounting Policies...................................................................... F-8
Notes to Consolidated Financial Statements............................................... F-8
</TABLE>
F-1
<PAGE> 22
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, 1997 and 1996 and the related
consolidated statements of operations, shareholders' equity and cashflows for
the year ended June 30, 1997, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing standards
except as discussed in the following paragraph. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide reasonable basis for our opinion.
In our opinion dated 31 July 1997, we were unable to express an opinion on the
1996 financial statements. The records of Prima Eastwood Model Management Inc
("Prima") one of the significant subsidiaries, did not permit the application of
auditing procedures necessary to express an opinion on the financial statements.
Prima did not maintain adequate detailed records, which consequently were
unauditable with respect to balances for accounts receivable from and accounts
payable to talents. As described in Note 3, the company has been able to
adequately re-construct the accounting records so as to be able to restate the
records for accounts receivable and accounts payable to talents for this period.
Accordingly, our present opinion on the 1996 financial statements as presented
herein, is different from that expressed in our previous report.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 2 to the
financial statements, the company has suffered recurring losses from operations
and has a net working capital deficiency that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. In addition as discussed in Note 13, the
company has been in violation of the permanent injunction issued by the US
Securities and Exchange Commission. The management has not determined the impact
of such a violation on its financial statements. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
In our opinion, except for the effects of the matters discussed in the fourth
paragraph, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of J R Consulting Inc.
and subsidiaries as of June 30, 1997 and 1996 and the results of its operations
and its cash flows for the years ended June 30, 1997, 1996 and 1995 in
conformity with generally accepted accounting principles.
Manchester, UK Coopers & Lybrand
May 1998
F-2
<PAGE> 23
J R CONSULTING INC.
J R CONSULTING INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
Note $'000 $'000
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents 35 45
Accounts receivable:
Trade 398 325
Other 5 388 178
Inventories 143 35
------- -------
Total current assets 964 583
Property, plant and equipment, net of depreciation 6 123 157
Intangible assets
Goodwill & patents 7 917 855
------- -------
Total assets 2,004 1,595
------- -------
LIABILITIES AND SHAREHOLDERS EQUITY
Accounts payable:
Trade 8 1,295 1,243
Other current liabilities 9 610 639
------- -------
Total current liabilities 1,905 1,882
Long term debt 10 68 --
------- -------
Total non-current liabilities 68 --
Commitments and contingencies 13
------- -------
Total liabilities 1,973 1,882
Shareholders' equity
Common stock, par value per share $0.04;
shares authorised 100 million; 12,678,578
(1997) and 11,719,955 (1996) shares issued
and outstanding 14 469 513
Additional paid-in capital less discount 14 1,853 2,362
Retained deficit (2,291) (3,162)
------- -------
Total shareholders' equity 31 (287)
------- -------
Total liabilities and shareholders' equity 2,004 1,595
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE> 24
J R CONSULTING INC.
J R CONSULTING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
Note $'000 $'000 $'000
<S> <C> <C> <C>
Net sales of products and services -- 1,536 2,210
Operating costs and expenses
Cost of products and services -- 644 766
Selling general and administrative 10 2,185 2,225
Depreciation and amortisation -- 49 82
------- ------- ------
Total operating costs and expenses 10 2,878 3,073
------- ------- ------
Operating loss (10) (1,342) (863)
Other income (expense):
Interest expense, net -- (12) 15
Write off investment -- (347) -
------- ------- ------
Loss from continuing operations before income taxes (10) (1,701) (878)
Provision for income taxes 15 -- -- --
------- ------- ------
Net loss (10) (1,701) (878)
======= ======= ======
16
Net loss per share
Net loss per common share $0.00 $(0.17) $(0.08)
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE> 25
J R CONSULTING INC.
J R CONSULTING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
$'000 $'000 $'000
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss -- (1,701) (878)
Adjustment to reconcile net earnings
to net cash flow from operating
activities:
Depreciation and amortization of
property, plant and equipment -- 17 20
Amortisation of intangibles -- 32 62
Gain on sale of property, plant and equipment -- - (10)
Write off of investment -- 347 -
(Increase) decrease in receivables -- 42 50
(Increase) decrease in prepaid expenses
and other accrued liabilities -- (116) 97
Increase/(decrease) in payables -- 272 (150)
(Increase)/decrease in inventory -- (138) 108
(Advance)/repayment with officer of -- (237) 211
subsidiary ------- ------- ------
NET CASH OUTFLOW FROM OPERATING
ACTIVITIES -- (1,482) (490)
INVESTING ACTIVITIES:
Capital expenditures on property, plant and -- (46) (80)
equipment
Proceeds of sale of property, plant and -- - 36
equipment
Purchase of investments -- (322) -
Consolidation of the opening cash balance of -- 28 -
Benatone and Prima ------- ------- ------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES -- (340) (54)
FINANCING ACTIVITIES:
Proceeds in respect of common stock to be -- 775 553
issued
Net proceeds from issuance of common stock -- 835 -
Loans from officers -- 199 23
Proceeds/(repayment) of bank loan -- 48 (32)
------- ------- ------
NET CASHFLOW FROM FINANCING ACTIVITIES -- 1,857 544
Net increase in cash and cash equivalents -- 35 10
Cash and cash equivalents at beginning of year -- - 35
CASH AND CASH EQUIVALENTS AT END OF YEAR -- 35 45
======= ======= ======
</TABLE>
F-5
<PAGE> 26
J R CONSULTING INC.
J R CONSULTING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED JUNE 30, 1995, 1996 AND 1997
CONT...
1995 1996 1997
$'000 $'000 $'000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid -- 12 2
Income taxes paid -- -- --
======= ======= ======
NON CASH ASSETS AND LIABILITIES OF
ACQUISITION:
Property and equipment -- 94 --
Patents -- 232 --
Inventories -- 5 --
Receivables -- 440 --
Prepaid expenses -- 12 --
Due from officer -- 50 --
Payables -- (539) --
Accrued expenses -- (103) --
Provisions -- (413) --
Loans -- (426) --
------- ------- ------
-- (648) --
======= ======= ======
The accompanying notes are an integral part of these financial statements
F-6
<PAGE> 27
J R CONSULTING INC.
J R CONSULTING INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<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 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 5,576,133 223 734 -- -- 957
Receipts in respect of common
stock to be issued -- 31 744 -- -- 775
Net loss -- -- -- -- (1,701) (1,701)
----------- ------- ------ ------ ------- ------
Balance at June 30, 1996 10,944,955 469 2,007 (154) (2,291) 31
Receipts in respect of common
stock to be issued -- 44 509 -- -- 553
Common stock issued, for which
cash was received in previous year 100,000 -- -- -- -- --
Net loss -- -- -- -- (878) (878)
Exchange differences -- -- -- -- 7 7
----------- ------- ------ ------ ------- ------
Balance as at June 30, 1997 11,044,955 513 2,516 (154) (3,162) (287)
=========== ======= ====== ====== ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE> 28
J R CONSULTING INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States.
The principal accounting policies followed by the Group (as defined below) and
observed in the preparation of these financial statements are summarised below:
BASIS OF CONSOLIDATION
(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, 1996 and
1997 and the statements of operations, shareholders equity and
cashflows for the years ended June 30, 1995, 1996 and 1997, are
presented on a consolidated basis and include the accounts of the
Company's wholly owned subsidiaries. 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.
The Group's principal operating subsidiaries, both of which were wholly
owned throughout the year ended June 30, 1997 were:
NAME COUNTRY OF INCORPORATION DATE ACQUIRED
Benatone Limited United Kingdom September 7, 1995
Prima Eastwest USA (California) March 1, 1996
Model Management Inc
("Prima")
(b) Acquisitions
The company made no acquisitions in the years ended June 30, 1995 and
1997. Acquisitions in the year ended June 30, 1996 comprised:
o 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.
F-8
<PAGE> 29
J R CONSULTING INC.
o On March 1, 1996 the Company acquired by merger 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
o 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.
o Prima East West 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.
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 costs
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-9
<PAGE> 30
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. Gains of losses on disposal of fixed assets are recorded in income.
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 $28,000 (1996: $91,000, 1995: $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.
F-10
<PAGE> 31
J R CONSULTING INC.
LOSS PER SHARE
Primary net loss per share is based on the weighted average number of shares of
common stock outstanding during the year, including shares not yet issued
formally but for which cash had been received.
2 GOING CONCERN
The consolidated statement of operations, on page F-4 shows that the Group
incurred a loss of $878,000 during the year. The consolidated balance sheet on
page F-3 shows that current liabilities exceeded current assets by $1,299,000.
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 the accounting records from January 1, 1996 through June
30, 1996 have been reconstructed.
4 RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No.128 requires companies 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."
SFAS 128 is required to be adopted for financial years on or after December 15,
1997.
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. SFAS 130 is required
to be adopted for financial years on or after December 15, 1997.
F-11
<PAGE> 32
J R CONSULTING INC.
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 it's performance. Adoption of this pronouncement will not
have a material effect on the Company's financial position or result of
operations. SFAS 131 is required to be adopted for financial years on or after
December 15, 1997.
In February of 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits."
This standard revises current disclosure requirements for employers' pensions
and other retiree benefits, eliminates certain disclosures which are no longer
useful and, to the extent practicable, standardizes disclosure for retiree
benefits. This standard is effective for financial statements issued for periods
ending after December 15, 1998, and will have no impact on the Corporation's
consolidated financial condition or results of operations.
5 OTHER RECEIVABLES
1996 1997
$'000 $'000
Advance to employees of subsidiary 237 26
Other receivables 117 110
Prepayments 34 42
------- -------
Total other receivables 388 178
======= =======
6 PROPERTY AND EQUIPMENT
1996 1997
$'000 $'000 Estimated
useful lives
Motor vehicle 30 12 4 years
Equipment 90 108 5-10 years
Leasehold improvement 20 74 5 years
------- -------
140 194
Less: accumulated depreciation (17) (37)
------- -------
123 157
======= =======
Depreciation charged to income in the year ended June 30, 1997 was $20,000
(1996: $17,000, 1995: $nil).
F-12
<PAGE> 33
J R CONSULTING INC.
7 INTANGIBLE ASSETS
The Group acquired patents held in Benatone and goodwill arising in respect of
the Prima acquisition during the year ended June 30, 1996.
Goodwill Patents Total
$'000 $'000 $'000
On acquisition 717 232 949
(16) (16) (32)
------- ------- -------
Amortization
At June 30, 1996 701 216 917
Amortization for year (48) (14) (62)
------- ------- -------
Net book value 653 202 855
======= ======= =======
8 TRADE PAYABLES
1996 1997
$'000 $'000
Trade payables 811 663
Other payables 79 54
Accruals 405 526
------- -------
1,295 1,243
======= =======
9 OTHER CURRENT LIABILITIES
1996 1997
$'000 $'000
Bank loans 48 16
Loans from officers 149 172
Other loans -- 38
Provision for legal claims 413 413
------- -------
610 639
======= =======
The loans from officers represents advances made by officers of the Company
which are non interest bearing and have no definite repayment terms.
F-13
<PAGE> 34
J R CONSULTING INC.
10 LONG TERM DEBT
1996 1997
$'000 $'000
Other loans 68 -
======= ======
The other loans are unsecured, interest free and repayable on demand after July
1, 1997.
11 ACQUISITIONS
There were no acquisitions in the years ended June 30, 1995 and 1997.
Acquisitions in the year ended June 30, 1996 are summarised:
Prima Benatone Total
$'000 $'000 $'000
Fair value of net assets acquired
Property and equipment 38 56 94
Patents -- 232 232
Inventories -- 5 5
Receivable 440 -- 440
Prepaid expenses 12 -- 12
Security deposits 28 -- 28
Due from officers 50 -- 50
Accounts payable (539) -- (539)
Accrued expenses (103) -- (103)
Provision (413) -- (413)
Loans -- (252) (252)
Overdraft (174) -- (174)
------- -------- -------
(661) 41 (620)
Goodwill 717 -- 717
------- -------- -------
Consideration 56 41 97
======= ======== =======
Consideration
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 $0.04 41
-------
97
=======
F-14
<PAGE> 35
J R CONSULTING INC.
In the case of Prima, further consideration may have been payable dependent on
Prima's financial performance, up to 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 $176,700 made up of 58,900 shares at $3.00 each. In each case, the directors
are confident that no further consideration will be paid and none has been
included in the summary of consideration set out above
12 INVESTMENTS
On September 12, 1995 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:
$'000
Issue of 632,585 shares at $0.04 25
Cash 322
--------
347
========
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, 1997
amounted to $1,060,000. The rent expense for the year ended June 30,
1997 was $206,744 (1996: $146,811 and 1995: $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:
F-15
<PAGE> 36
J R CONSULTING INC.
JUNE 30 AMOUNT
$'000
1998 122
1999 119
2000 119
2001 103
2,002 95
Thereafter 502
----------
Total 1,060
==========
(B) Royalty
The Group has a commitment to pay royalties of $0.0388 per electrical
plug sold, continuing until the year 2011.
(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 necessary.
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.
Mr Francis Vause has initiated legal proceedings against a subsidiary
of J R Consulting Inc., Benatone Limited. He is claiming damages for
breach of a consultancy agreement and non payment of royalties. The
directors intend to defend the action vigorously and in their opinion
no significant cost will arise.
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. Up to April 1997, the Company had not
filed timely with the SEC the annual report on Form 10-KSB for the year
ended June 30, 1996 nor the interim reports on Form 10-QSB for the
quarters ended September 30, 1996 and December 31, 1996. Subsequent to
the consent to the injunction, the Company failed to file timely the
interim report on Form 10-QSB for the quarter ended March 31, 1997, the
annual report on Form 10-KSB for the year ended June 30, 1997 and the
interim reports on Form 10-QSB for the quarters ended September 30 and
December 31, 1997. The Company can not yet determine the impact, if
any, on results of operations, financial positions, or cash flow of any
penalties and fines that may result from its violation of the SEC
injunction at this time.
F-16
<PAGE> 37
J R CONSULTING INC.
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, 1996 10,944,955 shares issued (a) 442 4,381 (154)
100,000 shares issued during the year -- -- --
------- ------- -------
At June 30, 1997 11,044,955 issued 442 4,381 (154)
Shares to be issued
798,000 at $1.00 (b) 32 766 --
437,000 at $0.50 (b) 23 195 --
399,623 at $0.53 (b) 16 196 --
------- ------- -------
At June 30, 1997, 12,678,578 shares issued and outstanding 513 5,538 (154)
======= ======= =======
</TABLE>
(a) At June 30, 1996 the Company had received $775,000 in
respect of 775,000 shares which had not been formally issued
at that date. 100,000 of these shares were formally issued
during the year.
(b) The Company has received cash in respect of 1,634,623 shares
which had not been formally issued at June 30, 1997 as
follows:
$'000
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
23,000 at $1.00 on July 19, 1996 23
100,000 at $1.00 on September 11, 1996 100
287,000 at $0.50 on February 14, 1997 143
60,000 at $0.53 on May 7, 1997 32
188,679 at $0.53 on May 7, 1997 100
150,944 at $0.53 on May 12, 1997 80
150,000 at $0.50 on May 19, 1997 75
---------
1,228
=========
F-17
<PAGE> 38
J R CONSULTING INC.
15 TAXATION
No tax payable arises in respect of the loss for the year. Tax losses available
for carry forward to offset against future trading profits amount to
approximately $2,219,000, including $700,000 in the United Kingdom. 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.
1997 1996
$'000 $'000
Total deferred tax asset
Losses 2,219 1,681
Less valuation allowance (2,219) (1,681)
-------- -------
-- --
======== =======
The Group has net operating loss carry forwards of approximately $1,120,000 and
$698,000 for federal income tax purposes at June 30, 1997 and 1996 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 $878,000 (1996: $1,701,000, 1995: $10,000) and a weighted average number
of shares issued for the year of 11,024,122.
17 RELATED PARTY TRANSACTIONS
The Group incurred consultancy costs of $45,000 (1996: $20,000) payable to a
company in which G Harris, a director of the Company, has a material interest.
The Group received cash advances, which remained outstanding at the financial
year end, from:
1996 1997
RELATED PARTY RELATIONSHIP $'000 $'000
D Lean Director 96 96
P Zachariou Director 53 76
Minden Business Corporation D Lean has a power of attorney 68 38
F-18
<PAGE> 39
J R CONSULTING INC.
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.
1995 1996
(UNAUDITED) (UNAUDITED)
$'000 $'000
Turnover 1,643 2,557
Operating costs (2,108) (4,196)
-------- ---------
Operating loss (465) (1,639)
======== =========
$(0.09) $(0.17)
Net loss per share
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
1995 1996 1997
$'000 $'000 $'000
SEGMENT
Model agency -- 583 1,177
Electrical accessories -- 953 1,033
-------- --------- ---------
-- 1,536 2,210
======== ========= =========
GEOGRAPHIC SECTOR
North America -- 583 1,177
United Kingdom -- 953 1,033
-------- --------- ---------
-- 1,536 2,210
======== ========= =========
F-19
<PAGE> 40
J R CONSULTING INC.
(b) Operating income before interest and tax
1995 1996 1997
$'000 $'000 $'000
SEGMENT
Model agency -- (611) (266)
Electrical accessories -- (338) (374)
Group overheads (10) (393) (223)
------- ------- -------
(10) (1,342) (863)
======= ======= =======
GEOGRAPHIC SECTOR
North America (10) (1,004) (489)
United Kingdom -- (338) (374)
------- ------- -------
(10) (1,342) (863)
======= ======= =======
(c) Depreciation and amortization
1995 1996 1997
$'000 $'000 $'000
SEGMENT
Model agency -- 18 59
Electrical accessories -- 17 9
Group overheads -- 14 14
------- ------- -------
-- 49 82
======= ======= =======
GEOGRAPHIC SECTOR
North America -- 32 73
United Kingdom -- 17 9
------- ------- -------
-- 49 82
======= ======= =======
F-20
<PAGE> 41
J R CONSULTING INC.
(d) Net asset/liabilities
1995 1996 1997
$'000 $'000 $'000
SEGMENT
Model agency -- (3,204) (3,467)
Electrical accessories -- (517) (954)
Group overheads -- 3,752 4,134
-------- --------- ---------
-- 31 (287)
======== ========= =========
GEOGRAPHIC SECTOR
North America -- 548 667
United Kingdom -- (517) (954)
-------- --------- ---------
-- 31 (287)
======== ========= =========
(e) Total assets
1995 1996 1997
$'000 $'000 $'000
SEGMENT
Model agency -- 1,385 1,095
Electrical accessories -- 333 370
Group overheads -- 286 130
-------- --------- ---------
-- 2,004 1,595
======== ========= =========
GEOGRAPHIC SECTOR
North America -- 1,671 1,225
United Kingdom -- 333 370
-------- --------- ---------
-- 2,004 1,595
======== ========= =========
F-21
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of Registrant
Benatone Limited (a United Kingdom Corporation)
Prima East West Model Management Inc. (a California corporation)
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 45
<SECURITIES> 0
<RECEIVABLES> 503
<ALLOWANCES> 58
<INVENTORY> 35
<CURRENT-ASSETS> 583
<PP&E> 157
<DEPRECIATION> 37
<TOTAL-ASSETS> 1,595
<CURRENT-LIABILITIES> 1,882
<BONDS> 0
0
0
<COMMON> 513
<OTHER-SE> (800)
<TOTAL-LIABILITY-AND-EQUITY> 1,595
<SALES> 1,033
<TOTAL-REVENUES> 2,210
<CGS> 767
<TOTAL-COSTS> 310
<OTHER-EXPENSES> 1,915
<LOSS-PROVISION> (18)
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> (878)
<INCOME-TAX> 0
<INCOME-CONTINUING> (878)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (878)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
