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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________TO _________
COMMISSION FILE NO. 2-78335-NY
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
- ------------------- -------------------
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
NONE
(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 X NO
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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: $2,051,000
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, as of a
specified date within the past 60 days: $2,512,187 as of July 22, 1999,
based on a price of $0.26 per share.
State the number of shares outstanding of the issuer's classes of common equity,
as of the latest practicable date: 13,373,257 shares of Common Stock, $.04 par
value per share, as of July 22, 1999.
Transitional Small Business Disclosure Format (check one): YES NO X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
The matters described in this item contain forward-looking statements
involving risks and uncertainties that 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 Securities and Exchange Commission.
INTRODUCTION
J R Consulting, Inc. (the "Company" or the "Registrant"), was organized
under the laws of Nevada on June 8, 1982. From then through September 7, 1995,
the Company generated nominal revenues. Prior to September 7, 1995, the Company
did not actively engage in business for at least one fiscal year.
Since then, until January 5, 1998, the Company has 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"). On January 5,
1998, the Company created another subsidiary, Que Management, Inc., a company
formed under the laws of New York ("Que").
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.
Que primarily operates a modeling agency in New York, New York.
In April 1998, the Company created Diva Entertainment, Inc., a Florida
corporation ("Diva"). The Company transferred all the outstanding and issued
stock of Prima and Que to Diva, making Diva a first-tier subsidiary and Prima
and Que second-tier subsidiaries. In May 1998, Diva raised $442,000 in a private
placement of 221,000 shares of common stock at a price of $2.00 per share. As a
result, the Company now owns a 95.3% equity interest in Diva.
Subsequent to the end of fiscal year 1998, a wholly-owned subsidiary of
Quasar Projects Company, a Delaware corporation ("Quasar"), merged into Diva in
April 1999. Quasar is a reporting company pursuant to the Securities Exchange
Act of 1934, but its assets are minimal and its common stock is not publicly
traded. The Company received 4,225,000 shares of Quasar's common stock,
representing 76.8% of the outstanding common stock of Quasar, for the Company's
95.30% equity interest in Diva. As a result of this transaction, Diva became a
wholly-owned subsidiary of Quasar.
Prior to, and as a condition to, the foregoing transaction, Quasar did
a private placement of 750 shares of its Series A Convertible Preferred Stock
(the "Series A Preferred") for $1,500,000. It received $750,000 of the offering
proceeds in cash and a subscription for the other $750,000, which is payable
when Quasar files a registration statement for the shares of its common stock
underlying the Series A Preferred shares. The Series A Preferred is entitled to
cumulative annual dividends of $60 per share and is convertible, at the option
of the holder until the first anniversary of its issuance, when it mandatorily
converts, into shares of Quasar's common stock at a conversion rate per share
equal to $2,000 divided by 65% of the average market price of Quasar's common
stock for the five trading days immediately prior to conversion.
As part of the foregoing transaction, the subscribers to the May 1998
private placement by Diva (the "Diva Subscribers") are entitled to an aggregate
of 221 shares of Quasar's Series A Preferred, unless they respectively exercise
dissenters' rights. Subscription rights to each 1,000 shares of Diva common
stock entitle the holder to one share of the Series A Preferred. If the holder
elects to exercise dissenters' rights, then the holder is entitled to the fair
value of the holder's subscription rights for shares of Diva common stock. The
Diva Subscribers respectively have until July 8, 1999, to exercise dissenters'
rights.
The Company also converted $3,000,000 of the debt owed to it by Diva
and/or Diva's subsidiaries into 3,000 shares of Series B Redeemable Convertible
Preferred Stock of Quasar (the "Series B Preferred"). The Series B Preferred is
entitled to cumulative annual dividends of $30 per share, is redeemable in whole
or in part at the option of Quasar's Board of Directors at a redemption price of
$1,000 per share and is convertible, at the option of the holder until the tenth
anniversary of its issuance, when it mandatorily converts, into shares of
Quasar's common stock at a conversion rate per share equal to $1,000 divided by
65% of the average market price of Quasar's common stock for the five trading
days immediately prior to conversion.
The Company and Quasar also entered into an Option Agreement giving the
Company the option to purchase such additional shares of Quasar's common stock
at its par value of $.001 per share as are necessary for the Company to maintain
the Company's ownership of the outstanding shares of Quasar's common stock at no
less than 65%. The option expires when all of the shares of Quasar's Series A
Preferred have been converted into shares of Quasar's common stock.
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").
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.
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 instead
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of screws, making the product superior to the normal screw type electrical plug
for quick assembly in manufacturing industries. The Simplug is deemed safer than
the conventional electrical plug in use. 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 and separately sells it to commercial users. Benatone has further
enhanced the jig by enabling it to be attached to an electrical tester. This
allows the operator to wire the Simplug and test the complete assembly in one
motion, thus saving time and labor for the manufacturer.
The Simplug is suited for manufacturer use because of ease of assembly.
Attaching the plug to cable is the last part of assembly. The use of the
enhanced jig with electrical tester is particularly 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 has assembled and tested, for example, extension sockets
with variable length cable for a United Kingdom manufacturer of such products.
Benatone further assembles under license table lamps for United Kingdom
sports clubs such as Manchester United and Liverpool. These products are also
distributed in Argos, a major sales warehouse. In addition, Benatone also has
other, smaller electrical assembly operations.
Benatone has also developed its own range of table lamps for sale to
football, rugby and cricket clubs. For each club that has sufficient demand,
Benatone produces these lamps for the United Kingdom market. Benatone also aims
to produce these lamps for the markets in the rest of the world, although there
are no assurances that this will occur. These lamps carry the team logos and are
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.
Subsequent to the end of fiscal year 1998, the United Kingdom
authorities responsible for quality control subjected the fuses used for the
Simplug to a series of tests in the fourth calendar quarter of 1998. Electrical
components using the fuses being tested cannot be sold while the tests are
being performed. As a result, Benatone could not sell any of its Simplugs
during the period of testing. The same situation had also occurred in 1997. On
both occasions, the test determined that the fuses were safe to use.
However, the testing had an adverse effect on Benatone because the
industry is extremely cyclical with a very high proportion of annual sales
occurring in the fourth calendar quarter of each year. In 1997, Benatone was
able to salvage some sales by air freighting the plugs to the United Kingdom
after the testing cleared the fuses. Although the effort had earned significant
goodwill with Benatone's customers, it had cost Benatone financially. In 1998,
Benatone decided against the use of air freight because the clearance of the
fuses came too late to supply Benatone's customers during their period of
greatest demand and Benatone's management considered the added financial burden
too great to incur for the second consecutive year.
As a result, several of Benatore's larger customers indicated that
they would no longer use Benatone because of the unreliability of supply. In
light of that, the very strong competition from countires with lower labor
costs in the assembly business, and the very low level of sales during the
first six calendar months of every year, Benetone decided to minimize its
losses by ceasing to do business until it can return to the market in a
significant way. Benatone expects to launch a new generation of the Simplug in
the third or fouth calendar quarter of 1999, although there is no assurance
that this will occur.
MARKETS
Benatone principally sells the Simplug to the luminaire industry in
England, Scotland, Ireland and Northern Ireland. The luminaire market alone in
the United Kingdom is approximately 6 million units per year.
MARKETING STRATEGY
Benatone generates sales by direct contact with the trade customers and
in advertising through specialist magazines.
NEW PRODUCTS
Benatone has developed the next generation of Simplug, which consists
of lighter and less brittle materials that should reduce manufacturing costs.
The plug will also be more consumer friendly. Benatone will seek to sell it in
the retail markets. Benatone is now arranging for the production of the new
tooling required to produce this new plug.
Benatone has also developed a non-rewireable plug for use by
manufacturers. The product has all necessary British Standard registrations but
is not yet in production.
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Benatone is researching the application of the saddle clamp in other
electrical products. Discussions are at an early stage for two possible new
applications, although there is no assurance that either of them will be
developed. This is an ongoing process. New developments will be announced as
they are completed and ready for production.
Benatone also developed a range of casual table lamps for the domestic
market. It expects these to be marketed to the United Kingdom retail chains,
although there is no assurance that this will occur.
MANUFACTURING
Benatone has the Simplug manufactured in China to full British
Standards Institute ("BSI") requirements. Each plug carries the British Kitemark
as to quality. Benatone receives the Simplugs in the United Kingdom as complete
units, where Benatone checks them 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.
Benatone assembles the sports and table lamps in its factory in
Blackburn utilizing 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, where there is a large pool of low-cost,
skilled labor. The workforce will increase as demand for each product increases,
although there are no assurances that such increases 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 screw-type plugs, its qualities far
outweigh its higher price. Effective quality controls mean that 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 other screw-type plugs.
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 cost-effective to industry. With
the introduction of the new generation of Simplug utilizing lower cost
materials, Benatone will be in a position to be even more competitive by
competing directly on price.
Many competitors are producing non-rewireable plugs. As a result, 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.
PATENTS
The Company, through another subsidiary of Benatone, holds the patents
for the use of the saddle clamp method of attaching 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. Benatone must pay a royalty of $0.0388 per plug sold to
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the inventor under a Royalty Agreement dated September 7, 1995, which will
continue until the expiration of the patents in the year 2011. The Company also
owns the patents for both the Simplug and the non-rewireable plug.
REGULATION
Benatone is ISO 9001 registered with BSI. It carries out 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
In the fiscal year ended June 30, 1997, Benatone phased out its
internal research and development program that was self-funded. The result of
both the internal and subsequently contracted out research has resulted in the
new generation of Simplug, the latest version of which was submitted for testing
with the BSI in May 1998. The plug complied with all tests and is now certified
for sale in the United Kingdom. During the fiscal years ended June 30, 1998 and
1997, Benatone spent $0 and $28,000, respectively, on research and
development activities.
EMPLOYEES
At June 30, 1998, Benatone had three full-time employees. None of the
employees is subject to any collective bargaining agreement. Benatone employs
temporary employees on a piecework basis for all assembly work on an "as and
when required" basis. This avoids the annual high turnover of full-time
employees that is inevitable due to the cyclical nature of the business. At June
30, 1998, Benatone had 6 part-time employees. Benatone considers its
relationship with its employees to be good. Since ceasing to do business in
January 1999, Benatone has reduced its workforce to one part-time person, who
maintains the factory and responds to all inquiries.
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
varieties. In addition, table lamps are expected to be strong in the Christmas
season. By seeking to sell the sports 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 two principal divisions, which are designated
"Print" and "Profile." An experienced manager in the particular field is in
charge of each division.
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.
Department stores, catalogue houses, advertising agencies,
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magazines, record companies, movie production firms and general industrial
advertisers utilize these models.
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 the Print division, but it 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, although there is no assurance that this will occur. This division
will seek to introduce models who may have a career in the print modeling
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
advertising. 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
Polygram; and general industry such as Calvin Klein and Levi's, Annhall Inc.,
Carlson & Partners, the Gianni Versace organization, Playboy and Broadway.
Profile is very much in the entertainment 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.
MARKETING STRATEGY
Prima advertises in trade journals used extensively by professionals
seeking such services. Prima's models have been widely seen on magazine covers.
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. With the formation and operation
of Que and the expertise of each company in its particular region, Prima is now
able to operate more effectively and efficiently by coordinating many of the
jobs between the two companies. This enhances Prima's ability to compete with
the major world-wide model agencies.
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
attracts models who are also seeking an entry into the entertainment industry,
which dominates the Los Angeles market. Prima is thus able to provide agency
services for models in both the print and entertainment industries. 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,
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should provide a highly competitive position to Prima in the entertainment and
modeling industry, particularly in the Los Angeles area, although there is no
assurance that this will continue.
AVAILABILITY OF TALENT
Any modeling agency can expand only by increasing 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. Its reputation assists in
introducing new talent to the industry. Furthermore, Prima operates a year-round
scouting program with individual scouts travelling around the United States of
America, Europe (both central and eastern) and South America in search of new
talent whom Prima can promote not only in its Print division, but also in its
Talent and Commercial division if it is created.
CUSTOMER AND TALENT BASE
During the period of more than ten years that Prima has been in
business, it has maintained a large base of both customers and models. The
client base is very diverse from department stores to record companies and movie
production firms. It is not linked solely to the geographic Los Angeles market.
This 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 and a Screen Actors Guild License, both
issued by the State of California and expiring on December 27, 1998. These
licenses enable it to operate as a talent agency for all purposes.
EMPLOYEES
At June 30, 1998, Prima had 11 full-time and no part-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 requirements of Prima's client base control the demand for the
talent represented by Prima. 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. Without moving into other industries, a client base
covering a wide range of industries has been the most practical way of achieving
this objective. Prima does experience fluctuations in its level of activity, but
most of the time there is no discernable cycle during the year. An exception to
this is the mid-summer period, when many clients reduce their level of activity
due to a peak in vacations by employees.
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QUE MANAGEMENT, INC.
SERVICES
Two experienced managers in the field of print manage Que.
Que operates in the competitive modeling agency field and is subdivided
into male and female subdivisions. Management believes that, in the short time
since Que began operations, it has become one of the leading print model
agencies in New York. Department stores, catalogue houses, advertising agencies,
magazines, record companies, movie production firms and general industrial
advertisers utilize these models.
Que intends to commence operation of a Talent and Commercial division,
although there is no assurance that this will occur. This division will seek to
introduce models who may have a career in the print modeling 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
into the print modeling industry.
MARKETS
Que's primary markets are in the field of print advertising. 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 Polygram; and general
industry such as Calvin Klein, Levi's, Annhall Inc., Carlson & Partners, the
Gianni Versace organization, Playboy and Broadway.
MARKETING STRATEGY
Que advertises in trade journals used extensively by professionals
seeking print modeling services. Furthermore, industry magazines and television
have reviewed Que as being a high-profile, fast-growing boutique agency. Que's
models have been widely seen on magazine covers. This creates a flow of new
clients and new models. Que also relies on its reputation to attract both
clients and model talent.
COMPETITION
Que competes with the major world-wide model agencies, most of which
are headquartered in New York. Que also competes with many smaller regional
firms. Because Que frequently works with a network of independent agencies when
placing its models in other markets and conversely helps place other agencies'
models in the New York market, Que can compete with the major agencies on a
world-wide basis. Having Prima as part of the group and the expertise of each
company in its particular region, Que is able to operate more effectively and
efficiently by coordinating many of the jobs between the two companies. This
enhances its ability to compete with the major world-wide model agencies.
The New York market with the larger firms tends to attract the
super-models with its major European markets and larger fee income.
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AVAILABILITY OF TALENT
Any modeling agency can expand only by increasing the talent that it
has as part of its portfolio. Que has created a solid foundation of talent, both
male and female, and its reputation assists in introducing new talent to the
industry. Furthermore, Que operates a year-round scouting policy with individual
scouts travelling around the United States of America, Europe (both central and
eastern) and South America in search of new talent whom Que can promote.
CUSTOMER AND TALENT BASE
Que was established on January 5, 1998. Since that date, it has built
and maintained a significant base of both customers and models. The client base
is very diverse from department stores to world famous designers not linked
solely to the geographic New York market. This base in both customer and talent
enables Que to meet the demand of its industry, and it can utilize this base to
expand its operations.
REGULATION
Que is in the process of acquiring a Talent License from the State of
New York. This will enable it to operate as a talent agency for all purposes
other than film and affiliated industries. Furthermore, Que intends to obtain a
Screen Actors Guild license in the near future to represent those of its talent
who may be used in the film and affiliated industries.
EMPLOYEES
At June 30, 1998, Que had 8 full-time and no part-time employees. None
of the employees is subject to any collective bargaining agreement. Que
considers its relationship with its employees to be good.
SEASONAL FLUCTUATIONS
The requirements of the client base control the demand for the talent
represented by Que. As a result, if one group of clients is experiencing a
cyclical downturn, other clients are typically experiencing a cyclical upturn.
It is the objective of the Company to take anti-cyclical measures. Without
moving into other industries, the client base covering a wide range of
industries has been the most practical way of achieving this objective. Que may
still experience fluctuations in its level of activity, but most of the time
there should be no discernible cycle during the year.
ITEM 2. DESCRIPTION OF PROPERTY
The Company does not directly own or lease any real property. Que
provides the Company space for its principal executive office at no cost to the
Company.
Benatone leases premises 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 that expires on February 28,
2000, at a fixed rent of $675 per month.
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Prima leases offices at 6855 Santa Monica Boulevard, Suite 406, Los
Angeles, California 90038, consisting of 2,460 square feet. The premises have
been held on a month to month tenancy since May 1996 at a current rent of $2,460
per month.
Que leases offices at 180 Varick Street, 13th Floor, New York, New York
10014, consisting of 3,650 square feet. It holds the offices pursuant to a lease
that expires on December 31, 2002, at a rent of $5,627.08 per month for the
calendar year 1998, increasing annually to $6,333.33 per month for the calendar
year 2002.
ITEM 3. LEGAL PROCEEDINGS
Prima is a party to litigation begun 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 begun 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 plaintiff,
together with Jeffrey Dash and Edward T. Stein, received from LISB. Plaintiff
claims that the Company and Pemm agreed to pay plaintiff'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 plaintiff in this litigation. Prima is vigorously
defending this litigation.
The Company consented to the entry of a Final Judgment of Permanent
Injunction dated April 25, 1997, against it in a Civil Action 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 had 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 judgement enjoined the
Company from failing to file future periodic reports on a timely basis. From
then through its Form 10-QSB for the fiscal quarter ended March 31, 1998, the
Company filed all of the reports required to be filed with the SEC. The
Company is filing this report late and is currently delinquent in filing its
Forms 10-QSB for the fiscal quarters ended September 30 and December 31, 1998,
and March 31, 1999. The Company plans to file those Forms 10-QSB shortly after
the filing of this report.
Benatone is a party to litigation begun in March 1998, that is
styled FRANCES VAUSE V. BENATONE LIMITED (FORMERLY TRADING AS CLASSLIFE
LIMITED), in the High Court of Justice, Queens Bench Division, Blackburn
District Registry, Case No. 1998-V-No. 25. Mr. Vause claimed damages for
alleged breach of a consulting agreement and alleged non-payment of royalties.
Management of the Company believes that the consulting agreement was terminated
legally for
10
<PAGE> 11
cause. Benatone filed a counterclaim against Mr. Vause seeking damages for
misrepresentation in connection with the original acquisition of Benatone.
During defense preparation, Benatone determined that the costs of defense would
be similar to the amount sought by Mr. Vause. Furthermore, because Mr. Vause
qualified for Legal Aid with respect to this litigation, Benatone could not
recover any defense costs against Mr. Vause even if Benatone won the case. As a
result, Benatone decided not to defend the litigation. On February 15, 1999, the
court entered an interlocutory judgment against Benatone in the amount of Pound
108,333.24 plus an amount to be assessed. Mr. Vause approached Benatone to reach
a negotiated settlement of the situation. Currently, the settlement discussions
envision (1) a Pound 60,000 payment to Mr. Vause from Benatone, (2) a reduced
royalty on the sales of the Simplug and (3) other non-cash considerations.
Although such a settlement would represent a significant saving to Benatone from
the cost of litigation, there is not assurance that Benatone will be able to
conclude such a settlement with Mr. Vause.
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 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.
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
HIGH BID LOW BID
-------- -------
July 1, 1997 - September 30, 1997 $1.875 $1.0625
October 1, 1997 - December 31, 1997 1.6875 0.6875
January 1, 1998 - March 31, 1998 1.4375 0.625
April 1, 1998 - June 30, 1998 1.50 0.4375
As of June 30, 1998, the Company had 1,184 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
Except for the historical information contained herein, the matters
discussed in this item are forward-looking statements involving risks and
uncertainties that 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.
11
<PAGE> 12
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1998
The fiscal year ended June 30, 1997, was one of consolidation and
reduction of losses of the companies acquired by the Registrant in the previous
fiscal 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
companies has not been realized. This could only be expected over the
forthcoming years, and there is no assurance that the full potential will be
realized. The fiscal year ended June 30, 1998, was one of continued
consolidation. The Company further reduced costs in the United Kingdom ("UK")
and opened a second talent agency in New York.
The Registrant incurred an operating loss of $895,000 for the fiscal
year ended June 30, 1998, of which $242,000 is attributable to the operations of
Benatone, $354,000 is attributable to the operations of Que, $68,000 is
attributable to the corporate expenses of Diva and the balance to corporate.
Prima had an operating profit of $14,000. The Company had net sales of
$2,051,000, $585,000 of which are attributed to Benatone, $1,262,000 of which
are attributable to Prima and $204,000 of which are attributed to Que. In
addition Prima realized a profit on the sale of its studio of $217,000. These
were the results for the full financial year for Benatone and Prima and for a
six-month period for Que.
Benatone's plug sales and assembly work for third parties in the fiscal
year ended June 30, 1998, were only about 56% of the level of the previous
fiscal year, while the loss was reduced to approximately 63% of the previous
year. The decline in assembly work is symptomatic of manufacturing industry in
the UK. For the six months to September 1998, manufacturing output in the UK has
reportedly declined in each of the six months. This has impacted particularly on
those industries competing in the export business and those industries competing
with imports from less developed countries in the Far East. The strength of the
British pound, compounded by the relative weakness of the currencies of the Far
Eastern countries employing very low-cost labor, has had an extremely damaging
effect on UK industry. In particular, many of Benatone's customers import their
product from the Far East fully assembled and only test in the UK for compliance
with BSI. The decline in plug sales is also largely for the same reasons as the
decline in assembly work.
However, in addition to these problems, Benatone has experienced a cash
flow problem that would normally be rectified by the Registrant if justifiable.
The new talent agency, Que, has required larger injections of cash than forecast
because it has performed better than forecast and has received priority in
allocating the available cash resources. This was not foreseen as a problem for
Benatone when Que was started because the Company had not foreseen the magnitude
of the problem in the UK manufacturing industry. The lack of liquidity has also
contributed to the decline in plug sales because the stock of plugs held by
Benatone has been kept to a minimum. On occasion, this has meant losing sales.
It is expected that sales and assembly will continue to disappoint until the
exchange rates return to their relative positions prior to the significant
weakening of the currencies of many of the countries in the Far East late in
calendar year 1997.
Although no assurances can be given, Benatone is planning to counter
this downturn with the new plug for the retail market once it is in commercial
production and entry into the non-rewireable plug market once a manufacturer of
the non-rewireable plug can be found at a competitive cost. Similarly, Benatone
is confident its own range of products will be successful if the exchange rates
return to their former relative levels, although there is no assurance that such
success will occur. Until these events occur, Benatone shall continue to keep
costs to a minimum and review the future of the company because at present the
UK operations do not represent a material part of the Company.
12
<PAGE> 13
Prima continued to be successful in reducing its costs while at the
same time making some improvement in the sales to make an operating profit for
the first time. This was primarily as a result of a more stable team of booking
agents at Prima but still requires a significant improvement in performance. By
working very closely with Que in New York, further 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.
Que began operations on January 5, 1998. The Company forecast losses
for the first year. However, the results of Que are very encouraging because
they are better than forecast and many of the initial expenses will not be
repeated. Furthermore, Que has already begun working and co-operating closely
with Prima to the benefit of both companies. With continued expansion, Que
should become profitable during the course of the fiscal year ending June 30,
1999, although there is no assurance that this will happen.
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 to the Registrant at an acceptable price were in financial
difficulties but with the potential to become very profitable.
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 an 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.
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 were expected to
continue to disappoint until the new plug for the retail market was 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
assembly work performed on a contract basis has suffered from lower cost work
from the less-developed countries but Benatone was confident its own range of
products would be successful, although there was no assurance of this.
13
<PAGE> 14
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. Prima has now
stabilized this situation and forecasts a significant improvement in sales
during the forthcoming years to make this a very successful talent agency,
although there is no assurance that this will happen.
TRENDS AND UNCERTAINTIES
BENATONE
Benatone is continuing to seek to lower its operating expenses while
expanding and increasing its customer base and operating revenues. Benatone has
BSI approval for its new generation of durable electrical plug but has not yet
arranged for its commercial production. This is a high priority for Benatone
because it will allow Benatone to expand and increase its customer base. Also it
will allow Benatone to reduce its cost, thereby increasing operating revenues.
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. These problems are
currently compounded by the competitive disadvantage of UK companies created by
the movement in the exchange rates over the fiscal year ended June 30, 1998.
Benatone's ability to obtain additional types of business and markets is
uncertain, as is the success of any of Benatone's new marketing strategies for
generating revenue.
As a result of Benatone failing to reach forecasted sales since
acquisition, 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 continues to seek to expand and increase its customer base and
operating revenues. As a result, Prima's administrative expenses and overhead
are likely to increase in future periods. Prima's ability to obtain additional
types of business and markets is uncertain, as is the success of any of Prima's
new marketing strategies for generating revenue.
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.
QUE
Que continues to seek to expand and increase its customer base and
operating revenues. As a result, its administrative expenses are likely to
increase in future periods. Que's ability to obtain additional types of business
and markets is uncertain, as is the success of any of Que's new marketing
strategies for generating revenue.
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Registrant had a working capital deficit of
$1,015,000. The Registrant has no current plans for future acquisitions during
the fiscal year ending June 30, 1999, and beyond. However, the Registrant plans
to relocate the Los Angeles office, which will require capital expenditure for
refurbishment of rented office space expected to be approximately $60,000. In
addition, the Registrant plans to acquire new computers for Los Angeles and
computer software for 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, Prima and Que, from payments on 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. The Registrant will continue to monitor
the financial requirements of the operations of Benatone, Prima and Que.
YEAR 2000 COMPLIANCE
The Company and its subsidiaries have no date-sensitive equipment other
than their computers and communications equipment. Thus, the only issues the
Company and its subsidiaries have addressed regarding Year 2000 compliance are
their computer systems and the state of readiness of third parties with whom
there is a material relationship.
The Company believes that its computer systems, those of Benatone and
its subsidiaries, and those of Que are Year 2000 compliant. Que has installed
completely new computer hardware and software for most of its requirements
during calendar year 1998; this new hardware and software is Year 2000
compliant. The Company does not believe that Prima's computer systems are Year
2000 compliant, but the Company has planned to relocate the Los Angeles office
of Prima during the fiscal year ended June 30, 1999. At that time, new computer
hardware and software would also be installed. The new hardware and software
planned for Prima are both readily available and Year 2000 compliant. The
Company plans to install new software for Que's New York office so that both
Prima and Que will be operating with similar computer systems using the same
software. The Company expects the cost of this new computer hardware and
software for both Prima and Que to be approximately $50,000. The Company and its
subsidiaries regularly review their computer systems. While the Company is
confident that most of its operations are already Year 2000 compliant, these
reviews should ensure that in the event there has been an oversight, the Company
will discover it and remedy it in a timely manner.
The talent agencies of Prima and Que do not have relationships with
third parties that could materially disrupt their operation if such third
parties had Year 2000 compliance problems other than with their communications
carrier for voice and data. Benatone does have relationships with third parties
that could have a material and adverse impact on its operations if such parties
are not Year 2000 compliant. Benatone's important customers, all based in the
UK, have given assurances that they either are Year 2000 compliant or will be
Year 2000 compliant in time to prevent any disruptions.
The Chinese manufacturing company of the Simplugs for Benatone is of
concern because there is only one supplier certified by BSI to supply the
Simplug. The manufacturer has given
15
<PAGE> 16
verbal assurances that it does not have any Year 2000 compliance problems.
However, if there are any disruptions, Benatone will be at risk, and the
disruption can have a severe impact on the performance of Benatone. If such
a disruption were to occur, Benatone would not be able to meet its customers'
demands, and Benatone may lose sales to competitors that would be very difficult
to recover. The risk of this occurring is difficult to assess, and the only
safeguard is that the manufacturer is also a supplier to the same market as
Benatone and a relatively large operator in both Europe and the Far East. Thus,
any disruptions for Benatone would be similar for the manufacturer but on a
magnitude far larger than for Benatone. The alternative of another supplier has
been examined, but arranging this is a long process requiring BSI certification.
The most feasible solution to a possible disruption to supplies is to hold
sufficient inventory prior to the end of calendar year 1999 to cover expected
demand for several months so that if the manufacturer has a problem, the impact
on Benatone would be minimal. Because customer demand declines early in each
calendar year as part of the normal business cycle, Benatone may have a
sufficient inventory to meet future demand if the single manufacturer
experiences a Year 2000 problem. The impact on Benatone would then be reduced to
one of cash flow requirements.
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
On September 4, 1998, the Company's Board of Directors appointed
Marcum & Kliegman LLP as the Company's independent auditors for the fiscal year
ending June 30, 1998, and dismissed Coopers & Lybrand, which had audited the
Company's financial statements for the previous two fiscal years ended June 30,
1997 and 1996, respectively. The Company reported the change in auditors in a
Current Report on Form 8-K dated September 4, 1998, and the amendments to that
report.
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 September 30,
1998, with respect to the Directors and Executive Officers of the Company.
NAME AGE POSITION
Peter Zachariou 37 President, Chairman of the
Board and Treasurer
Gabriel Harris 46 Director
David Lean 51 Director
Directors are elected by the shareholders and hold office 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
16
<PAGE> 17
August 11, 1995, Mr. Zachariou was also Secretary and Treasurer of the Company.
Furthermore, since June 26, 1998, Mr. Zachariou has been President and a
Director of ASD Group, Inc., a public company providing contract manufacturing
and engineering services to original equipment manufacturers. For at least the
preceding five years, Mr. Zachariou has been a private investor.
Gabriel Harris has been a Director of the Company since August 11,
1995, and was Secretary of the Company from that date until August 10, 1998. 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, 1998.
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 July 22, 1999, 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
OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OWNED(1)
------------------- ---------------------- ----------------
<S> <C> <C>
Peter Zachariou 2,710,000(2) 20.3%
Units 13-16 Euro Trading Estate
Oak Street
Blackburn, England BB1 6P1
Gabriel Harris 0 --%
Units 13-16 Euro Trading Estate
Oak Street
Blackburn, England BB1 6P1
David Lean 1,000 *
Units 13-16 Euro Trading Estate
Oak Street
Blackburn, England BB1 6P1
Kalbarri Investments Limited 1,000,000 7.5%
P.O. Box 119
Commerce House
St. Peter Port
Guernsey, England GY1 3HB
All officers and Directors 2,711,000 20.3%
As a group (3 persons)
</TABLE>
- ----------------------------
* Less than 1%
(1) Based upon 13,373,257 shares of Common Stock outstanding as of
July 22, 1999.
(2) Mr. Zachariou is the sole shareholder and a principal of
Havilland Ltd., the holder of record of these shares.
17
<PAGE> 18
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, 1998, were $415,000, $97,000 and
$38,000, respectively. The outstanding aggregate amount of such advances as at
June 30, 1998, was $436,000.
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
27.1 Financial Data Schedule (for S.E.C. use only)
- -----------------
(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.
18
<PAGE> 19
(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, 1998.
19
<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: July 22, 1999 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 July 22, 1999
Executive and Financial
Officer and Director
- ------------------------
GABRIEL HARRIS Director July ___, 1999
/s/ David Lean
- ------------------------
DAVID LEAN Principal Accounting July 22, 1999
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.
20
<PAGE> 21
J R CONSULTING, INC.
AND SUBSIDIARIES
CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORTS
Marcum & Kliegman LLP F-2
PricewaterhouseCoopers F-3
Porter Matthews & Marsden F-4
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-5
Statements of Operations F-7
Statements of Changes in Stockholders' Deficiency F-8
Statements of Cash Flows F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-11
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
J R Consulting, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of J R Consulting,
Inc. and subsidiaries as of June 30, 1998, and the related consolidated
statements of operations, changes in stockholders' deficiency, and cash flows
for the year ended June 30, 1998. These consolidated 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 did not
audit the consolidated financial statements of Benatone Limited and
subsidiaries, a wholly owned subsidiary, which statement reflect total assets
of $290,155 as of June 30, 1998 and total revenues of $584,642 for the year
then ended. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for Benatone Limited and subsidiaries, is based solely on the report
of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
In our opinion, 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, 1998, and the results of their operations
and their cash flows for the year ended June 30, 1998 in conformity with
generally accepted accounting principles.
September 4, 1998, except for Note 11 which Marcum and Kliegman LLP
is dated April 28, 1999
Woodbury, New York
F-2
<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, 1997 and 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows 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 paragraphs. 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 doubts 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 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 and Lybrand
12 May 1998
F-3
<PAGE> 24
PORTER MATTHEWS
& MARSDEN
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
BENATONE LIMITED
We were engaged to audit the accompanying consolidated balance sheet of
Benatone Limited and subsidiaries as of 30 June 1998 and the related
consolidated profit and loss account for the year ended 30 June 1998. 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. 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.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 1 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 1. 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 third
paragraph, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Benatone Limited
and subsidiaries as of 30 June 1998 and the results of its operations for the
year ended 30 June 1998 in conformity with generally accepted accounting
principles.
PORTER MATTHEWS & MARSDEN
Chartered Accountants
Blackburn 12 October 1998
F-4
<PAGE> 25
J R CONSULTING, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Amounts in thousands, except shares and per share information)
June 30, 1998
ASSETS
CURRENT ASSETS
- --------------
Cash and cash equivalents $41
Accounts receivable, less allowance for
doubtful accounts of $40 659
Marketable securities, at market value 37
Note receivable 88
Inventory 6
Prepaid expenses and other current assets 166
---
Total Current Assets $997
PROPERTY AND EQUIPMENT, Net 323
- ---------------------------
OTHER ASSETS
- ------------
Goodwill and patents, net of accumulated amortization of
$155 794
Security deposits 34
---
Total Other Assets 828
------
TOTAL ASSETS $2,148
======
The accompanying notes are an integral part of these financial statements
F-5
<PAGE> 26
J R CONSULTING, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Amounts in thousands, except shares and per share information)
June 30, 1998
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
- -------------------
Cash overdraft $51
Accounts payable, accrued expenses and other current
liabilities 1,192
Legal reserves 413
Deposits payable 200
Due to officers 156
---
Total Current Liabilities 2,012
OTHER LIABILITIES
- -----------------
Due to officer 279
-----
TOTAL LIABILITIES 2,291
COMMITMENTS AND CONTINGENCIES
- -----------------------------
STOCKHOLDERS' DEFICIENCY
- ------------------------
Common stock, $.04 par value; 100,000,000 shares
authorized, 12,542,578 shares issued and outstanding,
830,679 shares subscribed 535
Additional paid in capital 3,122
Unrealized loss on marketable securities (56)
Cumulative translation adjustments 6
Accumulated deficit (3,750)
-------
TOTAL STOCKHOLDERS' DEFICIENCY (143)
------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $2,148
======
The accompanying notes are an integral part of these financial statements
F-6
<PAGE> 27
J R CONSULTING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except shares and per share information)
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
REVENUE $2,051 $2,210
- ------- ------ ------
OPERATING COSTS AND EXPENSES
- ----------------------------
Cost of products and services 442 766
Selling, general and administrative expenses 2,504 2,307
------- ------
TOTAL OPERATING COSTS AND EXPENSES 2,946 3,073
------- ------
LOSS FROM OPERATIONS (895) (863)
------- ------
OTHER INCOME (EXPENSE)
- ----------------------
Interest income 4 -0-
Interest expense (11) (15)
Gain on sale of studio 217 -0-
Other income 82 -0-
------- ------
TOTAL OTHER INCOME (EXPENSE) 292 (15)
------- ------
NET LOSS $(603) $(878)
====== ======
LOSS PER SHARE OF COMMON STOCK
- ------------------------------
Basis and Diluted $(0.05) $(0.08)
====== =======
WEIGHTED AVERAGE COMMON STOCK
OUTSTANDING 13,208,839 11,024,122
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE> 28
J R CONSULTING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
(Amounts in thousands, except shares and per share information)
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Unrealized
--------------------------------- Additional loss on Foreign Total
Shares Shares Paid-in marketable exchange Accumulated Stockholders'
subscribed issued Amount Capital securities Translation Deficit Deficiency
---------- ---------- ----- -------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - July 1, 1996 775,000 10,944,955 $469 $1,853 $0 $0 $(2,291) $31
Common stock subscriptions 958,623 0 44 509 0 0 0 553
Issuance of common stock
under stock subscriptions (100,000) 100,000 0 0 0 0 0 0
Translation adjustment 0 0 0 0 0 7 0 7
Net loss (878) (878)
------------ ---------- ---- ------ ---- -- ------- -----
BALANCE - June 30, 1997 1,633,623 11,044,955 513 2,362 0 7 (3,169) (287)
Issuance of common stock under
stock subscriptions (1,046,623) 1,046,623 0 0 0 0 0 0
Common stock subscriptions
subscriptions 243,679 0 9 120 0 0 0 129
Issuance of common
stock 0 451,000 13 221 0 0 0 234
Increase in equity in connection
with Diva's private placement 0 0 0 419 0 0 170 589
Unrealized loss on
marketable securities 0 0 0 0 (56) 0 0 (56)
Translation adjustment 0 0 0 0 0 (1) 0 (1)
Minority interest 0 0 0 0 0 0 (148) (148)
Net loss 0 0 0 0 0 0 (603) (603)
------------ ---------- ---- ------ ---- -- ------- -----
BALANCE - June 30, 1998 830,679 12,542,578 $535 $3,122 $(56) $6 $(3,750) $(143)
============ ========== ==== ====== ==== == ======= =====
</TABLE>
The accompanying notes are an integral part of these financial statements
F-8
<PAGE> 29
J R CONSULTING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except shares and per share information)
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------ ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net loss $(603) $(878)
----- -----
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 100 82
Loss on foreign exchange (1) -0-
Gain on sale of assets (217) (10)
Decrease in allowance for doubtful accounts 18 -0-
(Increase) decrease in accounts receivable (432) 50
Decrease in inventory 29 108
(Increase) decrease in prepaid expenses and other
current assets (16) 97
Increase in security deposits (34) -0-
Increase in cash overdraft 21
Decrease in accounts payable, accrued expenses and other
current liabilities (17) (150)
Increase in deposit payable 200 -0-
----- -----
TOTAL ADJUSTMENTS (349) 177
----- -----
NET CASH USED IN OPERATING ACTIVITIES (952) (701)
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchases of property and equipment (293) (80)
Proceeds from sale of assets 241 36
Repayments of officer loan -0- 211
Purchases of marketable securities, net (68) -0-
----- -----
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (120) 167
----- -----
</TABLE>
The accompanying notes are an integral part of these financial statements
F-9
<PAGE> 30
J R CONSULTING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Amounts in thousands)
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from officers' loan, net $263 $23
Principal payments of loan -0- (32)
Proceeds from private placement offering 442 -0-
Capital contributed 363 553
----- ----
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,068 544
----- ----
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (4) 10
CASH AND CASH EQUIVALENTS - Beginning 45 35
- ------------------------- ----- ----
CASH AND CASH EQUIVALENTS - Ending $41 $45
- -------------------------- ===== ====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- --------------------------------------------------
Cash paid during the years for:
Interest $6 $2
</TABLE>
F-10
<PAGE> 31
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
-----------------------------------
J R Consulting, Inc. ("JRCI"), a holding company, was incorporated in the
State of Nevada on June 8, 1982. JRCI owns 100% of a United Kingdom
company, Benatone Limited ("Benatone") and owns approximately 95% of Diva
Entertainment, Inc. ("Diva").
Benatone owns 100% of Pivot Group Limited, Classlife Limited, Plugco
Limited and Bifa Limited ("Benatone and Subsidiaries") which are
incorporated in England and Wales. Benatone and Subsidiaries manufacture
and hold patents in designs of screwless electrical plugs. Plugs are
manufactured in low cost countries and sold wholesale in England.
On December 29, 1997 JRCI formed Que Management Inc. ("Que"), a wholly
owned subsidiary, which was incorporated in State of New York. On April
3, 1998, JRCI formed Diva, a holding company, which was incorporated in the
State of Florida.
During the fiscal year ended June 30, 1998, Diva issued 4,500,000 shares of
common stock to JRCI in exchange for 100% of the outstanding common stock
of Que and Prima Eastwest Model Management, Inc. ("Prima"), which was
incorporated in the State of California on January 29, 1996. Diva, Que and
Prima are collectively referred to as "Diva and Subsidiaries". The shares
issued were valued at the historical cost of JRCI's investment in Prima and
Que.
Prima and Que are in the business of providing management services to
models and talents in the entertainment industry, primarily in California
and New York. Prima also provides production services in California.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of JRCI,
Benatone and Subsidiaries, and Diva and Subsidiaries, collectively referred
to as the "Company". All significant inter-company transactions have been
eliminated in consolidation. The consolidated financial statements include
the operations of JRCI, Benatone and Prima for the year ended June 30, 1998
and the operations of Diva and Que for the period from inception to June
30, 1998.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all
short-term investments with an original maturity of three months or less to
be cash equivalents.
Inventory
---------
Inventory is stated at the lower of cost or market. The Company uses FIFO
method for determining costs. Provisions are made for slow moving and
obsolete inventory if necessary.
F-11
<PAGE> 32
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
Foreign Currency Translation
----------------------------
The Company has a foreign subsidiary that has operations in the United
Kingdom. The subsidiary's functional currency is the British pound. The
consolidated financial statements of the foreign subsidiary have been
translated using the current rate method in accordance with the Statement
of Financial Accounting Standards No. 52, Foreign Currency Translation
("SFAS No. 52").
Revenue Recognition
-------------------
Revenues are recorded when products are shipped or services are performed.
Property and Equipment
----------------------
Property and equipment is stated at cost. Maintenance and repair costs are
charged to expense as incurred; costs of major additions and betterments
are capitalized. When property and equipment is sold or otherwise disposed
of, the cost and related accumulated depreciation are eliminated from the
accounts and any resulting gain or loss is reflected in income.
Depreciation and Amortization
-----------------------------
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets. The cost of leasehold improvements is
amortized over the life of the lease or the estimated useful life of the
improvements, whichever is less. Depreciation and amortization of property
and equipment are computed on the straight-line and accelerated methods.
Net Earnings Per Share
----------------------
During the year ended June 30, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, Earnings per Share
("SFAS No. 128"). SFAS No. 128 eliminates the presentation of primary and
fully diluted earnings per share ("EPS") and requires presentation of basic
and diluted EPS. Basic EPS is computed by dividing income (loss) available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS is based on the weighted-average
number of shares of common stock and common stock equivalents outstanding
for the period. Common stock equivalents have been excluded from the
calculation of weighted-average shares for purposes of calculating diluted
earnings per share for 1998 and 1997, as inclusion is anti-dilutive.
Use of Estimates in the Financial Statements
--------------------------------------------
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.
F-12
<PAGE> 33
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
Advertising Costs
-----------------
Advertising costs are expensed as incurred.
Income Taxes
------------
Deferred income tax assets and liabilities are computed annually for
differences between the consolidated financial statement and tax basis of
assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to
the amount expected to be realized.
Reclassifications
-----------------
Certain accounts in the prior year consolidated financial statements have
been reclassified for comparative purposes to conform with the presentation
in the current year consolidated financial statements. These
reclassifications have no effect on the previously reported income.
Fair Value of Financial Instruments
-----------------------------------
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires that the Company disclose
estimated fair values of financial instruments. The carrying amounts
reported in the consolidated balance sheet for current assets and current
liabilities qualifying as financial instruments are a reasonable estimate
of fair value.
New Accounting Standards
------------------------
Financial Accounting Standards Board issued two new disclosure standards
in 1997:
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS No. 130"), establishes standards for reporting
and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity,
except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS No. 130 requires that all items that
are required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS No. 131"), which
supersedes Statement of Financial Accounting Standards No. 14, Financial
Reporting for Segments of a Business Enterprise, establishes standards for
the way that public enterprises report information about operating segments
in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements
regarding products and services, geographic areas and major customers. SFAS
No. 131 defines operating segments as components of an enterprise about
which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
F-13
<PAGE> 34
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, Employers' Disclosures about
Pensions and Other Post-retirement Benefits ("SFAS No. 132"), which
standardizes the disclosure requirements for pensions and other
post-retirement benefits.
These new accounting standards are not effective for the Company's 1998
fiscal year and management believes that the adoption of these new
accounting standards in fiscal 1999 will not have a material adverse effect
on the Company's consolidated financial statements.
NOTE 2 - Marketable Securities, at Market Value
--------------------------------------
In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, ("SFAS
No. 115"), the Company is required to classify each of their investments
into one of three categories, with different accounting for each category.
At June 30, 1998, management has classified all their equity securities as
available-for-sale securities, which are reported at fair market value,
with unrealized gains and losses excluded from earnings and reported in a
separate component of stockholders' equity. Gains and losses on the sale of
securities are recognized on a specific identification basis. At June 30,
1998, the Company had investments in securities with a fair market value of
$37 with an unrealized loss of $58. The Company had realized gains of $76
for the year ended June 30, 1998, which was included in other income in the
accompanying consolidated statement of operations.
NOTE 3 - Notes Receivable
----------------
In December 1997, Prima entered into an Asset Purchase Agreement (the
"Agreement") with an unrelated third party to sell certain assets and
liabilities of the studio for $329, resulting in a gain of $217. The
selling price consists of cash payments and notes receivable with interest
at 8% per annum. At June 30, 1998, the outstanding balance under the notes
is $88, which includes accrued interest of $4 (see Note 8).
NOTE 4 - Property and Equipment
----------------------
Property and equipment consists of the following at June 30, 1998:
Estimated
Amount Useful Life
------ -----------
Automobiles $11 4 years
Equipment and fixtures 176 5-7 years
Leasehold improvements 194 5 years
---
F-14
<PAGE> 35
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
381
Less: accumulated depreciation and amortization 58
----
Property and Equipment, net $323
====
Depreciation and amortization expense for the years ended June 30, 1998
and 1997 was approximately $39 and $20, respectively.
NOTE 5 - GOODWILL AND PATENTS
The Company has goodwill resulting from a business combination with Prima
and patents acquired though the acquisition of Benatone, which are being
amortized on the straight-line method over fifteen (15) years. The
amortization expense for the years ended June 30, 1998 and 1997 amounted
to approximately $61 and $62, respectively.
NOTE 6 - DUE TO OFFICERS
Due to officers, short-term represents advances made by two officers of
the Company which are non-interest bearing and have no definite repayment
terms.
Due to officer, long-term represents advances made by an officer of the
Company which are non-interest bearing and due after June 30, 1999.
NOTE 7 - INCOME TAXES
No provision has been made in the accompanying consolidated financial
statements for income tax expense as a result of the current operating
loss and net operating loss carryforwards, which are fully reserved.
The Company's total deferred tax assets, which relate to net operating
loss carryforwards, and tax effects of differences in financial reporting
and income tax reporting for amortization methods, and the related
valuation allowance are as follows:
1998 1997
----- ----
Total deferred tax assets $2,002 $2,219
Less valuation allowance (2,002) (2,219)
------- -------
Net deferred tax assets $-0- $-0-
======= =======
At June 30, 1998, the Company has U.S. federal and state and local tax
loss carryforwards and
F-15
<PAGE> 36
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
foreign tax loss carryforwards for certain foreign subsidiaries of
approximately $2,664 and $1,120 for federal income tax purposes in 1998
and 1997, respectively, which expire in the years 2009 through 2013.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Leasing Arrangements
--------------------
The Company leases its New York office through a five-year non-cancelable
lease agreement expiring in December 2002. The Company also rents its Los
Angeles office on a month to month basis. In addition, the Company
maintains an office in the United Kingdom. Benatone entered into a
three-year non-cancelable operating lease for premises in February 1997
that will expire February 2000. In addition, the Company leases certain
equipment under non-cancelable operating leases that expire through
August 1998.
Future minimum rental commitments under such noncancellable operating
leases as of June 30, 1998 are as follows:
For the Year
Ending June 30, Amount
-------------- ------
1999 $79
2000 77
2001 73
2002 75
2003 38
-----
Total $342
=====
Rent expense for the years ended June 30, 1998 and 1997 was $83 and $207,
respectively.
Royalty
-------
Benatone is committed to pay royalties of approximately four (4) cents
per electrical plug sold, through the year 2011.
Contingency
-----------
In December 1997, Prima entered into an Agreement with an unrelated third
party to sell certain assets and liabilities (see Note 3). Pursuant to
this Agreement, Prima assigned the studio lease to the buyer. The future
commitments under the lease at June 30, 1998 amounted to $874 through
October 2007. Prima is contingently liable for these commitments in case
the buyer is in defaults on such payments.
F-16
<PAGE> 37
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
Litigation
----------
Prima is named as a defendant in an action filed by a bank in February
1997. The bank is seeking to enforce the terms of certain promissory
notes allegedly guaranteed by Prima and collateralized by substantially
all assets of Prima. At the time of the commencement of the action, the
balance was $413 together with interest thereon from January 30, 1997.
Prima is vigorously defending the lawsuit and has asserted a cross-claim
against a co-defendant, one of the borrowers, who indemnified Prima with
any possible loss in connection with this loan. Since Prima cannot
determine whether the co-defendant has sufficient assets to reimburse
Prima for any potential loss, Prima has established a reserve of $413.
An individual has initiated legal proceedings against Benatone. He is
claiming damages for breach of a consulting agreement and non-payment of
royalties. Benatone is attempting to settle this matter. Management
believes that the resolution of this matter will not have a material
adverse effect on the financial position of the Company.
SEC Injunction
--------------
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, and the interim reports on Form 10-QSB for the
quarters ended September 30, and December 31, 1996. Subsequent to entry
of 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.
However, the Company has filed all of those reports and timely filed the
interim report on Form 10-QSB for the quarter ended March 31, 1998. The
Company filed late its Form 10-KSB for the year ended June 30, 1998, and
is currently delinquent in filing its Forms 10-QSB for the fiscal
quarters ended September 30, and December 31, 1998, and March 31, 1999.
The Company plans to file those Forms 10-QSB in the very near future.
Management believes that its violation of the SEC injunction will not
have a material adverse effect on the financial condition of the Company.
NOTE 9 - STOCK
Private Placement Offering
--------------------------
In May 1998, Diva commenced a private placement offering of its common
stock, wherein it proposed to sell up to 500,000 shares of common stock
at a price of $2.00 per share. The offering expires July 31, 1998,
subject to an extension of the offering up to an additional 90 days. At
June 30, 1998, the net proceeds received from the private offering in
connection with the sale of 221,000 subscribed shares of common stock was
$398 (net of placement agent fee of $44). At June 30, 1998, the
subscribed stock was not yet formally issued.
In accordance with private placement offering, the placement agent will
receive options exercisable until one year from the closing of the
offering to purchase up to 300,000 shares of common stock at $2.00 per
share. The placement agent and its selected dealers will receive
F-17
<PAGE> 38
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
for selling shares to investors, a 10% commission on the selling price to
investors.
MINORITY INTEREST
The minority interest is held by a small group of outside investors who
own approximately 5% of Diva. Since the minority interest is a debit
balance on the consolidated balance sheet, the minority's interest in any
future losses and gains are not be recorded until the aggregate of such
prior losses and accumulated deficit equals the aggregate of future
profits and losses.
NOTE 10 - SEGMENT INFORMATION
BUSINESS SEGMENTS
The Company operates two principal business segments: model agency and
electrical accessories. A summary of the Company's operations by business
segments for the years ended June 30, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
Model Electrical Corporate and
Agency Accessories Eliminations Total
------ ----------- ------------ -----
<S> <C> <C> <C> <C>
1998
----
Revenue $1,466 $585 $0 $2,051
Operating loss (408) (242) (245) (895)
Identifiable assets 1,744 290 114 2,148
Capital expenditures 293 0 0 293
Depreciation and
amortization 74 13 13 100
Model Electrical Corporate and
Agency Accessories Eliminations Total
------ ----------- ------------ -----
1997
----
Revenue $1,177 $1,033 $0 $2,210
Operating loss (266) (374) (223) (863)
Identifiable assets 1,095 370 130 1,595
Depreciation and
amortization 59 9 14 82
</TABLE>
Geographic Segments
-------------------
The Company's operates in two geographic business segments: The United
States of America and The United Kingdom. A summary of the Company's
operations by geographic segments for the years ended June 30, 1998 and
1997, is as follows:
F-18
<PAGE> 39
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
United United
States Kingdom Total
------ ------- -----
1998
----
Revenue $1,466 $585 $2,051
Operating loss (653) (242) (895)
Identifiable assets 1,858 290 2,148
Capital expenditures 293 0 293
Depreciation and
amortization 87 13 100
United United
States Kingdom Total
------ ------- -----
1997
----
Revenue $1,177 $1,033 $2,210
Operating loss (489) (374) (863)
Identifiable assets 1,225 370 1,595
Depreciation and
amortization 73 9 82
NOTE 11 - Subsequent Event - Plan of Reorganization
-----------------------------------------
On April 28, 1999, but effective as of April 1, 1999, Diva
Entertainment, known as Quasar Projects Company, a Delaware corporation
("Quasar"), acquired by reverse subsidiary merger Diva. JRCI received
4,225,000 shares of Quasar's common stock, representing 76.8% of
Quasar's outstanding common stock, for JRCI'S 95% equity interest in
Diva. In connection with the acquisition, Quasar changed its name to
Diva Entertainment, Inc.
The subscribers to the May 1998 private placement by Diva (see Note 9),
who owned the other 5% equity interest in Diva, are entitled, at their
respective option, to either shares of Quasar's Series A Convertible
Preferred Stock (the "Series A Preferred") on the basis of one share of
the Series A Preferred for the subscription rights to 1,000 shares of
Diva's common stock or, by exercising dissenters' rights, the fair value
of their respective subscription rights for shares of Diva's common
stock. The Series A Preferred is entitled to cumulative annual dividends
of $60 per share and is convertible, at the option of the holder until
the first anniversary of its issuance, when it mandatorily converts,
into shares of Quasar's common stock at a conversion rate per share
equal to $2,000 divided by 65% of the average market price of Quasar's
common stock for the five trading days immediately prior to conversion.
Prior to, and as a condition to, the foregoing transaction Quasar did a
private placement of 750 shares of its Series A Preferred for
$1,500,000. It received $750,000 of the offering proceeds in cash and a
subscription for the other $750,000, which is payable when Quasar files
a registration statement for the shares of its common stock underlying
the Series A Preferred shares.
JRCI also converted $3,000,000 of the debt owed to it by Diva and/or
Diva's subsidiaries, into 3,000 shares of Quasar's Series B Redeemable
Convertible Preferred Stock (the "Series B Preferred"). The Series B
Preferred is entitled to cumulative annual dividends of $30 per share,
is redeemable in whole or in part at the option of Quasar's Board of
Directors at a redemption price of $1,000 per share and is convertible,
at the option of the holder until the tenth anniversary of its issuance,
when it mandatorily converts, into shares of Quasar's common stock at a
conversion rate per share equal to $1,000 divided by 65% of the average
market price of Quasar's common stock for the five trading days
immediately prior to conversion.
JRCI and Quasar also entered into an Option Agreement giving JRCI the
option to purchase such additional shares of Quasar's common stock at
its par value of $.001 per share as are necessary for JRCI to maintain
JRCI's ownership of the outstanding shares of Quasar's common stock at
no less than 65%. The option expires when all of the shares of Quasar's
Series A Preferred have been converted into shares of Quasar's common
stock.
F-19
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
Benatone Limited (a United Kingdom Corporation)
Diva Entertainment, Inc. (a Florida corporation)
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<FISCAL-YEAR-END> JUN-30-1998
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<PERIOD-END> JUN-30-1998
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<SECURITIES> 37
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0
0
<COMMON> 535
<OTHER-SE> (678)
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