U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
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) 807-6994
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
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 Company was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES [ ] NO [X]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State the issuer's revenues for its most recent fiscal year: $1,814,000
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 December
20, 1999 was $8,663,084 based on a price of $0.8125 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 December 20, 1999.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
J R Consulting, Inc (the "Company") was organized under the laws of the
State of Nevada on June 8, 1982. From its inception through September 7, 1995,
the Company generated nominal revenues and, prior to September 7, 1995, the
Company did not actively engage in business for at least one fiscal year.
During the fiscal year ended June 30, 1999, the Company has been
engaged in two separate businesses. The Company owns, operates and manages
modeling agencies through its subsidiaries - Prima Eastwest Model Management,
Inc, a California corporation ("Prima"), and Que Management, Inc, a New York
corporation ("Que"). In addition, until June 30, 1999, the Company, through its
subsidiary Benatone Limited, was engaged in the manufacture and sale of
screwless rewireable electrical plugs and the assembly of small electrical
accessories for third party manufacturers in the United Kingdom. Effective June
30, 1999, the Company sold its shares of Benatone Limited.
RECENT DEVELOPMENTS
DIVA REORGANIZATION
Effective April 1, 1999, the Company entered into a transaction
pursuant to which (i) it became the controlling shareholder of Diva
Entertainment, Inc., a Delaware corporation formerly known as Quasar Projects
Company ("Diva-Delaware"), and (ii) Diva Entertainment, Inc., a Florida
corporation and 95.3% owned subsidiary ("Diva-Florida"), became a wholly owned
subsidiary of Diva-Delaware. In connection with the reorganization, the Company
received 4,225,000 shares of Diva-Delaware's common stock, representing 76.8% of
the outstanding common stock of Diva-Delaware, in exchange for the Company's
95.3% equity interest in Diva. Although its shares are not currently publicly
traded, Diva-Delaware is a public company pursuant to the Securities Exchange
Act of 1934.
Also in connection with the reorganization, the Company agreed to
convert $3,000,000 of debt, owed to it by Diva-Florida into 3,000 shares of
Series B Redeemable Convertible Stock of the Company. In addition, the Company
entered into an Option Agreement with Diva-Delaware, so that the Company would
maintain its ownership percentage of the outstanding common stock of
Diva-Delaware in a range between 65% and 92%, exclusive of any conversions of
the Series B Redeemable Convertible Preferred Stock into shares of common stock
of Diva-Delaware.
The merger was contingent upon the Diva-Delaware selling 350 shares of
Series A Convertible Preferred Stock at $2,000 per share to private investors.
As of the effective date of the merger, 375 shares of Series A Convertible Stock
were sold to investors, resulting in approximately $750,000 of gross proceeds to
Diva-Delaware.
PROVIDENTIAL SECURITIES, INC.
On October 28, 1999, the Company entered into a Corporate Combination
Agreement pursuant to which it agreed to acquire at least 90% of the issued and
outstanding shares of Providential Securities, Inc., a registered broker-dealer,
in exchange for shares of the Company's
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common stock. Under this Agreement, it is contemplated that prior to the
consummation of the Agreement, the Company would effect a 1-for-2 reverse stock
split. As a result, each of the Company's current shareholders would receive one
share for each two shares owned and the Company would have 6,686,629 shares
issued and outstanding. The Company would then issue up to 30,000,000 shares of
its common stock to the shareholders of Providential in exchange for their
shares of Providential. Thus, upon consummation of the transaction, the Company
will have issued and outstanding up to 36,686,629 shares of common stock, of
which the shareholders of Providential will own approximately 82%. Upon
consummation of the transaction, Peter Zachariou, David Lean and Gabriel Harris
would resign from their positions as officers and directors of JRCI and will be
replaced with the designees of the Providential shareholders. In addition, as
part of the transaction, the Company will sell for fair market value all of the
shares and the option to purchase additional shares that it owns of Diva
Entertainment, Inc.
Consummation of the transaction is subject to a number of conditions,
including the Company obtaining the consent of the Board of Directors and a
majority of the shareholders and Providential obtaining the approval of the
National Association of Securities Dealers, Inc. No assurance can be given that
these conditions will be met and that the transaction will be consummated.
DIVA ENTERTAINMENT, INC.
THE BUSINESS
The Company is in the business of representing talent including
professional fashion models, commercial actors and theatrical actors. The talent
management business, including model management, is based upon obtaining talent
and matching talent to clientele. Traditional modeling clientele include print
and television advertising, and runway. Both male and female fashion models have
a limited career span. Most professional models are aged between 18 and 25
years, although there is a limited market for child and mature models. As a
result, the talent management business is characterized by continuous talent
turnover, the need to discover new talent and the need to anticipate and adapt
to changing consumer tastes.
Talent management fees are based on a percentage of the model's fee,
plus additional fees paid by the clientele. The Company's over 500 clients
include magazine publishing houses, designers, national retailers and catalogs
including Elle Magazine, Talbot's, Nordstroms, Banana Republic and Macy's.
The Company anticipates opening model agencies in additional areas in
the future. Management is evaluating opportunities in Florida and London.
However, management is only at the evaluation stages. The Company has not signed
any letters of intent or agreements to open any additional agencies and can make
no assurances that any additional agencies will be opened.
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. Que is managed by
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two experienced managers in the field of print. The Print divisions of Prima and
Que operate in the competitive modeling agency field and are subdivided into
male and female subdivisions. 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.
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.
MARKETING
The traditional markets for Prima and Que are in the field of print.
This includes not only magazines such as Vanity Fair, Glamour, GQ, Mirabella,
Cosmopolitan, Allure and Vogue; but also advertising agencies, catalogues; movie
production companies such as Universal, Paramount and Warner Brothers; and
general industry such as Calvin Klein, Levi's, ABC Television, and the Gianni
Versace organization.
Prima and Que advertise in trade journals used extensively by
professionals seeking print modeling services. Furthermore, industry magazines
and television have viewed Prima and Que as being high-profile, fast-growing
boutique agencies. Prima and Que's models have been widely seen on magazine
covers. This creates a flow of new clients and new models. Prima and Que also
rely on their reputations to attract clients and model talent.
COMPETITION
Prima's Print division competes with the major world-wide model
agencies, several of which are headquartered in New York. Prima also competes
with many smaller regional firms. Because Prima frequently works with a network
of independent agencies when placing its models in other markets and conversely
helps place other agencies' models in the Los Angeles market, Prima can compete
with the major agencies on a world-wide basis.
While the New York market with the larger firms tends to attract the
super models with its major European markets and larger fee income, Los Angeles
on the other hand attracts models who are also seeking an entry into the
entertainment industry. The entertainment industry dominates the Los Angeles
market and Prima is thus able to provide agency services for models to both
print and entertainment industry work. In particular, the success to date of its
Profile division, with its service of both the modeling and celebrity market,
and the proposed introduction of the Talent and Commercial division at Prima,
should provide a highly competitive position for Prima in the entertainment and
modeling industry, particularly in the Los Angeles area, although there is no
assurance that this will continue. A competitor of Profile also operates a hair
and makeup division to try and compete in this attractive market.
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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 a 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.
Notwithstanding this, there can be no assurance that the Company can compete
effectively in the future.
CUSTOMER AND TALENT BASE
Prima has been in business for over ten years. Over that period, it has
maintained a wide base of both customers and models. The client base is very
diverse from department stores to record companies and movie production firms
and is not linked solely to the geographic Los Angeles market. Que, although
opened more recently on January 5, 1998, also has a similarly diverse client
base.
Any modeling agency must expand by increasing the talent that it has as
part of its portfolio. Que and Prima have had and continue to have a foundation
of existing talent, both male and female. The talent base is very diverse
including models with different ethnic backgrounds and looks. Furthermore, Que
and Prima operate a year-round scouting program with individual scouts traveling
around the United States, Europe (both central and eastern) and South America in
search of new talent.
The wide base in both customers and talent enables Prima and Que to
meet the demands of its industry. This wide base in customers and talent will
also enable Diva to expand its operations.
EMPLOYEES
At June 30, 1999, the Company had 22 employees. None of the employees
is subject to any collective bargaining agreement. Prima and Que consider their
relationships with their employees to be good.
BENATONE LIMITED
THE BUSINESS
Until June 30, 1999, the Company through its wholly owned subsidiary,
Benatone Limited, was engaged in the manufacture and sale of screwless
rewireable electrical plugs and the assembly of small electrical accessories for
third party manufacturers in the United Kingdom. Effective June 30, 1999, the
Company sold its shares of Benatone Limited to Basesound Limited in exchange for
(pound)10.00. In connection with such transaction Basesound assumed all of the
liabilities of Benatone.
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As described below, Benatone manufactured and distributed the patented
"Simplug" screwless rewireable electrical plug. In the fourth quarter of the
calendar year 1998, the fuses used by the manufacturer of the Simplug were
subjected to a series of tests by the authorities in the United Kingdom
responsible for quality control. While these tests were being performed, the
sale of any electrical components using these particular fuses was banned. This
prevented Benatone from selling any of its Simplugs during the period of
testing. The same situation had occurred in the fourth quarter of calendar year
1997. On both occasions, the results of the tests proved that the fuses were
safe.
As previously reported, the industry is extremely cyclical and a very
high proportion of the annual sales of all companies in the electrical plug
industry is made during the fourth quarter of each calendar year (in the
experience of Benatone, up to 80%). In calendar year 1997, the Company was able
to salvage the position by air freighting the plugs to the United Kingdom once
clearance had been given for the fuses. While this cost the Company financially,
it also earned the Company significant goodwill with its customers. However, the
Company made the decision not to repeat this exercise in 1998 because the
clearance for the fuses came too late to supply the customers during their
period of greatest demand and management considered the financial burden for the
second consecutive year to be too great.
As a consequence, several of the Company's larger customers were not
prepared to use the Company in the future as a source for plugs (due to
unreliability of supply) and sales during the first six months of each calendar
year were very low. The Company's problems were exacerbated by the very strong
competition from low labor cost countries in the assembly business. Therefore in
January 1999 the Company decided to minimize its losses by ceasing to conduct
business in this area. The sale of Benatone was consummated on June 30, 1999.
PRODUCTS
While a subsidiary of the Company, Benatone manufactured and
distributed the patented "Simplug" screwless rewireable electrical plug. The
cables were retained within the electrical plug by means of saddle clamps and
not screws, making the product ideal for quick assembly in manufacturing
industries as compared to the normal screw type electrical plug. The Simplug is
deemed safer than the conventional electrical plug used. It is recognized that
alternating current has the effect of loosening screw type fixings. This does
not occur with the Simplug.
Benatone manufactured a specifically designed jig to enable fast wiring
of the Simplug, which was sold separately to commercial users. Benatone further
enhanced the jig by enabling it to be attached to an electrical tester, allowing
the operator to wire the Simplug and test the complete assembly in one motion,
thus saving time and labor for the manufacturer.
The product is suited for manufacturer use because of ease of assembly
and the requirement to assemble the plug to cable as the last part of assembly.
The use of the enhanced jig with electrical tester is beneficial particularly to
the luminaire industry, which is required to test each lamp assembly before sale
to the public.
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Benatone also ran separately an assembly operation for manufacturers of
other products. For example, Benatone assembled and tested extension sockets
with variable length cables for a United Kingdom manufacturer of such products.
Benatone further assembled table lamps for United Kingdom sports clubs
such as Manchester United and Liverpool under license. These products were also
distributed in Argos, a major sales warehouse. In addition, Benatone also had
other smaller electrical assembly operations.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's current address is 180 Varick Street, 13th Floor, New
York, New York 10014. Que leases 3,650 square feet of office space at 180 Varick
Street, 13th Floor, New York, New York 10014, pursuant to a lease that expires
on December 31, 2002. The rent for this space is approximately $6,000 per month
for the calendar year 1999 with rent increasing annually to $6,333.33 per month
for the calendar year 2002.
Prima leases offices at 6100 Wilshire Boulevard, Suite 710, Los
Angeles, California 90048, consisting of 2,476 square feet. Prima leases the
offices pursuant to a lease that expires on January 15, 2004 at a rent of
$4,580.60 per month.
ITEM 3. LEGAL PROCEEDINGS
Prima is a party to litigation that began on January 30, 1997, and is
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 sued all of the defendants for approximately $502,988 based upon a demand
loan that LISB made to Godt, Stein, Dash and Prima Management and that was
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.
On May 6, 1999, a Judgment was entered against the defendants in this matter,
including Prima. However, the Judgment provides that to the extent Prima is
required to pay any sums to LISB, Prima is entitled to a judgment against Edward
Stein. To date, LISB has not sought to enforce this judgment against Prima.
Management believes that the LISB is seeking to enforce this judgment against
Edward Stein. To the extent Prima is required to pay any monies to LISB, Prima
intends to vigorously pursue its rights against Edward Stein.
J R Consulting, Inc. and Prima are parties to another litigation that
began on February 12, 1997, and is 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 J R Consulting, Inc. that was merged
into Prima on March 1, 1996 in order to consummate the Company's acquisition of
Prima. Godt alleges that Prima promised that it would repay a demand loan that
Godt, together with Jeffrey
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Dash and Edward T. Stein, received from LISB. Godt claims that J R Consulting,
Inc. and Pemm agreed to pay Godt's indebtedness to LISB upon the closing of the
acquisition of Prima by J R Consulting, Inc. 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 J R
Consulting, Inc., management of J R Consulting, Inc. believes that neither J R
Consulting, Inc. nor Pemm has any liability to Mr. Godt in this litigation. J R
Consulting, Inc. and Prima are vigorously defending this litigation.
The Company consented to the entry of a Final Judgment of Permanent
Injunction against it dated April 25, 1997 in a Civil Action against it by the
Securities and Exchange Commission (the "SEC"), Case No 97-834 in the United
States District Court for the District of Columbia. The SEC initiated the civil
action because the Company had failed to file timely its Form 10-KSB for the
fiscal year ended June 30, 1996 and its Form 10-QSBs for the fiscal quarters
ended March 31, September 30, and December 31, 1996. The judgement required the
Company to file with the SEC all of the foregoing reports by May 15, 1997, and
enjoined the Company from failing to file future periodic reports on a timely
basis. The Company has since filed each of the reports mentioned in the civil
action. However, this Annual Report for the year ended June 30, 1999, is being
filed late. The Company is still delinquent with the filing of its Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1999. The Company
intends to file this Quarterly Report within the next week.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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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. Until December 12, 1999, the Common Stock was trading under the
symbol "JRCI". Since December 12, 1999, the Common Stock has been trading under
the symbol "JRCIE." 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
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January 1, 1998 - March 31, 1998 1.25 0.5625
April 1, 1998 - June 30, 1998 1.25 0.4375
July 1, 1998 - September 30, 1998 0.875 0.25
October 1, 1998 - December 31, 1998 0.375 0.125
January 1, 1999 - March 31, 1999 0.4063 0.2188
April 1, 1999 - June 30, 1999 0.3125 0.25
July 1, 1999 - September 30, 1999 0.25 0.125
As of June 30, 1999, the Company had 1,177 holders of record of its
Common Stock.
RECENT SALES OF UNREGISTERED SECURITIES
In May 1998, Diva-Florida sold 221,000 shares of its Series A
Convertible Preferred Stock at a price of $2.00 per share. Commissions of
$30,000 were paid in connection with such sales. The proceeds were applied to
working capital. Pursuant to the reorganization, which became effective in April
1999, 200,000 of these shares were exchanged for 200 shares of Series A
Convertible Preferred Stock of Diva-Delaware. The balance of 21,000 shares were
redeemed by Diva-Florida.
In February through April 1999, Diva-Delaware conducted a private
offering of 750 shares of Series A Convertible Preferred Stock at a price of
$2,000.00 per share. Diva received $750,000 of the offering proceeds in cash and
a subscription for the balance. Commissions of $30,000 were paid in connection
with such sales. These proceeds were used to finance capital expenditures and
applied to working capital.
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.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION [DL TO UPDATE]
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.
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1999
The fiscal year ended June 30, 1998 ("Fiscal 1998") was one of
consolidation at Prima and development of the newly formed Que. This had a
measure of success as shown by the results of the Company, with Prima making a
small operating profit and revenues of Que achieving management targets. The
full potential of these subsidiaries had 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, 1999 ("Fiscal 1999")
was one of continued consolidation with an emphasis on expansion at Que. Also,
Benatone was shut down and sold because management decided that it was not a
viable business given the operating environment. Furthermore, there was no
synergy between Benatone and the other operations of the Company.
The Company incurred a loss from continuing operations of $1,246,000
for Fiscal 1999 compared with a loss from continuing operations of $356,000 for
Fiscal 1998. The Company's sales from continuing operations continued to expand
and were $1,814,000 in Fiscal 1999 as compared to $1,466,000 in Fiscal 1998.
However, selling, general and administrative expenses increased at an even
faster rate and were $2,894,000 in Fiscal 1999 as compared to $2,119,000 in
Fiscal 1998.
The significant increase in the Company's net loss from continuing
operations was primarily due to the uncollectability of a $48,000 receivable,
litigation expense of $90,000 and the settlement of some previously outstanding
issues in Fiscal 1999. By contrast, in Fiscal 1998, the overall performance of
the continuing operations was improved primarily due to the $217,000 gain on the
sale of the photographic studio.
The discontinued operations of Benatone incurred a loss of $89,000 in
Fiscal 1999 as compared with a loss of $247,000 in Fiscal 1998. The impact of
this loss was further reduced in Fiscal 1999 by the gain of $25,000 on the sale
of Benatone.
Prima continued to be successful in reducing its costs although this
was at some cost to its sales. This resulted in Prima making an operating
profit. During the year, Prima moved its office and during this disruptive
period all divisions experienced some loss in sales. Management is making every
effort to recover those sales in subsequent periods. By working very closely
with Que in New York, management expects further improvement in sales during the
forthcoming years, although there is no assurance that this will happen.
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Que began operations on January 5, 1998 and the Company forecast losses
for the first few years. However the results of Que are encouraging as sales are
significantly better than was forecasted 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.
TRENDS AND UNCERTAINTIES
PRIMA
Prima continues to seek to expand and increase its customer base and
operating revenues. In doing so it is probable that its administrative expenses
and overhead, are likely to increase in future periods. The continuation of
obtaining additional types of business and markets is uncertain and the
continued success of any of Prima's new marketing strategies for generating
revenue is uncertain.
QUE
Que continues to seek to expand and increase its customer base and
operating revenues. In doing so it is probable that its administrative expenses
are likely to increase in future periods. The continuation of obtaining
additional types of business and markets is uncertain and the continued success
of any of Que's new marketing strategies for generating revenue is uncertain.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 1999, the Company had a working capital deficit of
$1,236,000. The business is capital intensive. The operating companies must pay
their modeling talent soon after services are rendered. While the accounts
receivable for these operating companies are generally due in 30 days, they are
usually collected within 60 to 120 days.
The Company expects that the working capital cash requirements over the
next 12 months will be generated from operations and the balance of the private
offering. However, the Company anticipates opening model agencies in additional
areas in the future. Assuming the Company does not open additional model
agencies in the next 12 months, the capital expenditures are anticipated to be
$25,000. Such expenditures will be primarily for office equipment. The Company
expects these capital expenditures to be financed through working capital.
In February through April 1999, Diva-Delaware conducted a private
offering of 750 shares of Series A Convertible Preferred Stock. Diva-Delaware
received $750,000 of the offering proceeds in cash and received a subscription
for the remaining $750,000 which is payable when the Registration
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Statement for Diva-Delaware incorporating the audited financial statements for
Fiscal 1999 is filed. Diva-Delaware anticipates filing an amendment to the
Registration Statement incorporating these financial statements next month.
These proceeds will be used to finance capital expenditures and applied to
working capital. Except as described, the Company has no commitments for
additional funding and no assurance can be given that it will obtain additional
funding.
YEAR 2000 COMPLIANCE
The Year 2000 issue refers to a condition in computer software where a
two-digit field rather than a four-digit field is used to distinguish a calendar
year. Unless corrected, date-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in system failures
or miscalculations causing disruptions to various activities and operations.
Such an uncorrected condition could significantly interfere with the conduct of
the Company's business, could result in disruption of the Company's operations
and could subject the Company to potentially significant legal liabilities.
In Fiscal 1999, the Company conducted an assessment of the Year 2000
issue and the potential effect it would have on the Company and its business.
The Company has also prepared a formal plan for dealing with the Year 2000
issue. The Company updated much of its existing software for Year 2000
compliance by modifying existing internally developed software. The Company
hired outside consultants and acquired new and upgraded third party software
packages to replace those currently used that cannot be modified.
While the Company believes it has made substantial progress in
resolving any Year 2000 issues, the possibility exists that the Company could
inadvertently fail to correct a Year 2000 problem. Such problems might continue
to appear throughout calendar year 2000. While the Company can be increasingly
confident, there can be no certainty until the end of Year 2000. The Company
believes the impact of such an occurrence would be minor, as substantial Year
2000 compliant equipment additions and upgrades have occurred in recent years.
If such resolution does not occur, the Company believes it will be able to
conduct its business, possibly at a reduced volume, using its already Year 2000
compliant server and personal computer software until resolution occurs.
Third-party suppliers or customers who have not modified their systems
to adequately address the Year 2000 issue may also affect the Company. During
the fourth quarter of 1999, the Company will survey many of its major customers
and suppliers regarding resolution of their Year 2000 issues.
Year 2000 readiness will cost the Company an estimated $65,000
(including upgrades to existing systems) to complete although this does not
include the purchase of replacement software for systems that were upgraded
rather than replaced.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements are attached to this Report.
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth certain information as of June 30, 1999,
with respect to the Directors and Executive Officers of the Company.
NAME AGE POSITION
- ---- --- --------
Peter Zachariou 38 President, Chairman of the Board and Treasurer
Gabriel Harris 47 Director
David Lean 53 Principal Accounting Officer, Acting Secretary
and Director
Directors are elected at the annual meeting of shareholders and hold
office until the following annual meeting and until their successors are elected
and qualified. All Executive Officers serve at the discretion of the Board of
Directors.
Peter Zachariou has been President and Chairman of the Board of J R
Consulting, Inc. since June 23, 1995 and Treasurer of J R Consulting, Inc. since
July 15, 1997. From June 23, 1995 until August 11, 1995, Mr. Zachariou was also
Secretary and Treasurer of J R Consulting, Inc. Mr. Zachariou has been President
and Chairman of the Board of Diva since April 1999. 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 August 11, 1999 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. Since August
10, 1998, Mr. Lean has been Acting Secretary. 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.
13
<PAGE>
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, 1999.
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 December 20, 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.
NAME AND ADDRESS SHARES OF COMMON STOCK PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNED (1)
- ------------------- ------------------ ---------
Peter Zachariou 2,710,000 (2) 20.26%
Flat 2
50 Well Walk
Hampstead
London NW3 1BT
Gabriel Harris - - %
44 Chessington Avenue
London
N3 3DP
David Lean 1,000 * %
Ford House
Ashurst
West Sussex BN44 3AT
14
<PAGE>
All officers and Directors
As a group (3 persons) 2,711,000 20.27%
- ---------------------------------
(1) Based upon 13,373,257 shares of Common Stock outstanding as of December
20, 1999.
(2) Mr. Zachariou is the sole shareholder and a principal of Havilland Ltd.
the holder of record of these shares.
* Less than 0.1%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Peter Zachariou, a Director and the President and Treasurer of the
Company; and David Lean, a Director of the Company; 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 and Mr. Lean during Fiscal 1999, were $395,874 and $155,415,
respectively. The outstanding amount of such advances as at June 30, 1999 was
$516,247.
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)
10.12 Corporate Combination Agreement with Providential Securities, Inc.
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
15
<PAGE>
(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 Company's Current Report on
Form 8-K dated September 7, 1995.
(3) Incorporated herein by reference to the Company's Current Report on
Form 8-K/A dated September 12, 1995.
(4) Incorporated herein by reference to the Company's Current report on
Form 8-K dated March 1, 1996.
(b) Form 8-K
On September 9, 1998, the Company filed a Current Report on Form 8-K
regarding a change in its independent auditors effective September 4,
1998. This Current Report was amended on September 21, 1998 and
September 29, 1998.
On August 9, 1999, the Company filed a Current Report on Form 8-K a
corporate reorganization effective April 1, 1999.
16
<PAGE>
J R CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 1999 and 1998
<PAGE>
J R CONSULTING, INC. AND SUBSIDIARIES
CONTENTS
- --------------------------------------------------------------------------------
PAGE
----
INDEPENDENT AUDITORS' REPORTS
Marcum & Kliegman LLP F-1-F2
Porter Matthews & Marsden F-3
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet F-4-5
Consolidated Statements of Operations F-6
Consolidated Statements of Changes in Stockholders' Deficiency F-7
Consolidated Statements of Cash Flows F-8-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-10-21
<PAGE>
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, 1999, and the related consolidated
statements of operations, changes in stockholders' deficiency, and cash flows
for the years ended June 30, 1999 and 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, which was a wholly owned subsidiary as of June 30,
1998, which statements reflect total revenues of $584,642 for the year ended
June 30, 1998. 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, as discontinued operations, is
based solely on the report of the other auditors.
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 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, 1999, and the results of their operations and
their cash flows for the years ended June 30, 1999 and 1998 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 12, the Company
incurred a net loss of approximately $1,310,000 during the year ended June 30,
1999, and, as of that date, had a working capital deficiency of approximately
$1,236,000 and a negative net worth of approximately $1,955,000. The Company's
business plan for fiscal 2000, which is also described in Note 12 to the
<PAGE>
financial statements, contemplates reduced operating losses and obtaining
additional working capital. The Company's ability to achieve the foregoing
elements of its business plan, which may be necessary to permit the realization
of assets and satisfaction of liabilities in the ordinary course of business, is
uncertain. Those conditions raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Marcum & Kliegman LLP
Woodbury, New York
December 14, 1999
F-2
<PAGE>
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 standard.
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-3
<PAGE>
J R CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Amounts in thousands, except shares and per share information)
June 30, 1999
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 1
Accounts receivable, less allowance for
doubtful accounts of $158 1,202
Prepaid expenses and other current assets 72
Due from related parties 65
Employee advances 15
------
Total Current Assets $1,355
PROPERTY AND EQUIPMENT, Net 349
OTHER ASSETS
Goodwill, net of accumulated
amortization of $160 559
Security deposits 39
Due from officer 4
------
Total Other Assets 602
------
TOTAL ASSETS $2,306
======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
J R CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Amounts in thousands, except shares and per share information)
June 30, 1999
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Cash overdraft $ 183
Accounts payable, accrued expenses and
other current liabilities 1,128
Due to related parties 577
Legal reserves 503
Deposits payable 200
-------
Total Current Liabilities $ 2,591
OTHER LIABILITIES
Due to officers 520
-------
TOTAL LIABILITIES 3,111
COMMITMENTS AND CONTINGENCIES
PREFERRED STOCK OF SUBSIDIARY, par value $.001;
1,000,000 shares authorized
Series A convertible preferred stock, 1,721 shares
designated, 575 shares issued and outstanding 1,150
STOCKHOLDERS' DEFICIENCY
Common stock, $.04 par value; 100,000,000 shares
authorized, 13,184,578 shares issued and outstanding,
188,679 shares subscribed 535
Additional paid in capital 2,703
Accumulated other comprehensive income 67
Accumulated deficit (5,260)
-------
TOTAL STOCKHOLDERS' DEFICIENCY (1,955)
-------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 2,306
=======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
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, 1999 and 1998
- --------------------------------------------------------------------------------
1999 1998
------------ ------------
REVENUES
Products and services $ 1,814 $ 1,466
Interest income -- 4
Gain on sale of studio -- 217
Other income -- 82
------------ ------------
Total Revenues 1,814 1,769
------------ ------------
EXPENSES
Selling, general and administrative expenses 2,894 2,119
Interest expense 1 6
Other expense 165 --
------------ ------------
Total Expenses 3,060 2,125
------------ ------------
NET LOSS FROM CONTINUING OPERATIONS (1,246) (356)
------------ ------------
DISCONTINUED OPERATIONS
Gain on sale of discontinued operations 25 --
Loss from discontinued operations (89) (247)
------------ ------------
NET LOSS FROM DISCONTINUED OPERATIONS (64) (247)
------------ ------------
NET LOSS $ (1,310) $ (603)
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 13,373,257 13,208,837
============ ============
NET LOSS FROM CONTINUING OPERATIONS
PER SHARE $ (.09) $ (.03)
============ ============
NET LOSS PER SHARE $ (.10) $ (.05)
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
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, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
---------------------------------- ADDITIONAL OTHER TOTAL
SHARES SHARES PAID-IN COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
SUBSCRIBED ISSUED AMOUNT CAPITAL INCOME (LOSS) DEFICIT DEFICIENCY
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - June 30, 1997 1,633,623 11,044,955 $513 $2,362 $ 7 $(3,169) $ (287)
Issuance of common stock under --
stock subscriptions (1,046,623) 1,046,623 -- -- -- --
Common stock subscriptions 243,679 9 120 -- -- 129
Issuance of common stock -- 451,000 13 221 -- -- 234
Increase in equity in
connection with Diva-Florida's
private placement -- -- 419 -- 170 589
Unrealized loss on
marketable securities -- -- -- (56) -- (56)
Translation adjustment -- -- -- (1) -- (1)
Minority interest -- -- -- -- (148) (148)
Net loss -- -- -- -- -- (603) (603)
---------- ---------- ---- ------ ---- ------- -------
BALANCE - June 30, 1998 830,679 12,542,578 535 3,122 (50) (3,750) (143)
---------- ---------- ---- ------ ---- ------- -------
Issuance of common stock (437,000) 437,000 -- -- -- -- --
Issuance of common stock (150,000) 150,000 -- -- -- -- --
Issuance of common stock (55,000) 55,000 -- -- -- -- --
Realized loss on marketable
securities -- -- -- -- 56 -- 56
Translation adjustment -- -- -- -- 61 -- 61
Decrease in equity in
connection with reverse merger
with Diva-Delaware -- -- -- (419) -- (200) (619)
Net loss -- -- -- -- -- (1,310) (1,310)
---------- ---------- ---- ------ ---- ------- -------
BALANCE - June 30, 1999 188,679 13,184,578 $535 $2,703 $ 67 $(5,260) $(1,955)
========== ========== ==== ====== ==== ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-7
<PAGE>
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, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continued operations $(1,246) $ (356)
------- -------
Adjustments to reconcile net loss from continued operations to
net cash used in continued operating activities:
Depreciation and amortization 128 87
Gain (loss) on foreign exchange 61 (1)
Loss (gain) on sale of assets 48 (217)
Increase in accounts receivable (631) (508)
(Increase) decrease in prepaid expenses and
other current assets (27) 105
Increase in security deposits (5) (34)
Increase in cash overdraft 132 21
Increase (decrease) in accounts payable, accrued expenses
and other current liabilities 359 (64)
Increase in deposit payable -- 200
Increase in patents -- 178
------- -------
NET CASH PROVIDED BY (USED IN) CONTINUING
OPERATIONS 65 (233)
NET CASH USED IN DISCONTINUED OPERATIONS (214) (363)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (1,395) (952)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (161) (293)
Proceeds from sale of the studio 40 241
Proceeds from sale of investments 37 (12)
Disposal of equipment 55 --
Other 56 (56)
------- -------
NET CASH USED IN INVESTING ACTIVITES $ 27 $ (120)
------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-8
<PAGE>
J R CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Amounts in thousands except shares and per share information)
For the Years Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from officers' loan, net $ 81 $ 263
Advances from related parties 512 --
Proceeds from private placement offering 750 363
Advances to employees (15) --
Capital contributed -- 442
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,328 1,068
------- -------
NET DECREASE IN CASH (40) (4)
CASH - Beginning 41 45
------- -------
CASH - Ending $ 1 $ 41
======= =======
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest
Continued operations $ 1 $ 6
Discontinued operations $ -- $ --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-9
<PAGE>
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 owned 100% of a United Kingdom
company, Benatone Limited ("Benatone"), which was sold on June 30, 1999
(see Note 11). JRCI is the majority stockholder of Diva Entertainment,
Inc., a Delaware corporation formerly known as Quasar Projects Company
("Diva-Delaware").
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 Entertainment, Inc., a Florida corporation and
holding company ("Diva-Florida").
During the fiscal year ended June 30, 1998, Diva-Florida 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. 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.
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. Benatone
was sold on June 30, 1999 (see Note 11).
BUSINESS COMBINATION
On April 28, 1999, but effective April 1, 1999, Diva-Delaware, a public
shell company, acquired JRCI's 95% equity interest in Diva-Florida in
exchange for 4,225,000 shares of Diva-Delaware's common stock (the
"Acquisition"). This Acquisition, which has been treated as a capital
transaction in substance, rather than a business combination, was deemed a
"reverse acquisition" for accounting purposes. Accordingly, Diva-Florida
was the accounting acquirer and the historical financial statements prior
to April 1, 1999 were those of Diva-Florida. The capital structure and
earnings (losses) per share of Diva-Florida have been retroactively
restated to reflect the Acquition as if it occurred at the beginning of the
period. In connection with the above Acquisition, Diva-Delaware changed its
name from Quasar Projects Company to Diva Entertainment, Inc.
Diva-Delaware, Diva-Florida, Que and Prima are collectively referred as
"Diva and Subsidiaries".
F-10
<PAGE>
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, continued
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of JRCI,
Benatone and Subsidiaries, Diva and Subsidiaries, collectively referred to
as the "Company". All significant inter-company transactions have been
eliminated in consolidation.
IMPAIRMENT OF LONG-LIVED ASSETS
Equipment is reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If
the sum of the expected undiscounted cash flows is less than the carrying
value of the related asset or group of assets, a loss is recognized for the
difference between the fair value and carrying value of the asset or group
assets.
FOREIGN CURRENCY TRANSLATION
The Company had owned a foreign subsidiary that had operated in the United
Kingdom. The subsidiary's functional currency was the British pound. The
consolidated financial statements of the foreign subsidiary had been
translated using the current rate method in accordance with the Statement
of Financial Accounting Standards No. 52, Foreign Currency Translation
("SFAS No. 52").
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
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 outstanding for the period and common stock equivalents outstanding
at the end of the period. Common stock equivalents have been excluded from
the calculation of weighted-average shares for purposes of calculating
diluted earnings per share for 1999 and 1998, as such inclusion is
anti-dilutive.
F-11
<PAGE>
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, continued
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.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards
for all stock-based compensation plans, including employee stock options,
restricted stock, employee stock purchase plans and stock appreciation
rights. SFAS No. 123 requires compensation expense to be recorded (i) using
the new fair value method or (ii) using the existing accounting rules
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related interpretations with pro
forma disclosure of what net income and earnings per share would have been
had the Company adopted the new fair value method. The Company adopted this
standard in fiscal 1999 and the implementation of this standard did not
have any impact on its financial statements.
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 statement of financial position for current assets and
current liabilities qualifying as financial instruments are a reasonable
estimate of fair value.
F-12
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
- --------------------------------------------------------------------------------
COMPREHENSIVE INCOME
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.
The Company adopted this standard in fiscal 1999 and the implementation of
this standard did not have a material impact on its financial statements.
REPORTING OF SEGMENTS
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.
PENSION AND OTHER BENEFITS
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. The Company adopted this standard in fiscal 1999
and the implementation of this standard did not have any impact on its
financial statements.
ACCOUNTING DEVELOPMENTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("ASEC of AICPA") issued
Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", effective for
fiscal years beginning after December 15, 1998. SOP No. 98-1 requires that
certain costs of computer software developed or obtained for internal use
be continued capitalized and amortized over the useful life of the related
software. The Company does not expect that the adoption of this standard
will have a material impact on its financial statements.
F-13
<PAGE>
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, continued
ACCOUNTING DEVELOPMENTS, continued
In April 1998, the ASEC of AICPA issued SOP No. 98-5, "Reporting on the
Costs of Start-up Activities", and effective for fiscal years beginning
after December 15, 1998. SOP 98-5 requires the costs of start-up activities
and organization costs to be expensed as incurred. The Company does not
expect that the adoption of this standard will have a material impact on
its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective for fiscal years beginning
after June 15, 1999, which has been deferred to June 30, 2000 by publishing
of SFAS No. 137. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. This Statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative
instrument depends on its intended use and the resulting designation. The
Company does not expect that the adoption of this standard will have a
material impact on its financial statements.
NOTE 2 - NOTE 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 a promissory note with interest
at 8% per annum. At June 30, 1999, the company forgave the outstanding note
balance of $48 (see Note 7).
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30, 1999:
ESTIMATED
AMOUNT USEFUL LIFE
--------------------------
Equipment and fixtures $221 5-7 years
Leasehold improvements 225 5 years
----
446
Less: accumulated depreciation
and amortization 97
----
Property and Equipment, net $349
====
F-14
<PAGE>
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
- --------------------------------------------------------------------------------
NOTE 3 - PROPERTY AND EQUIPMENT, continued
Depreciation and amortization expense for the years ended June 30, 1999
and 1998 was approximately $80 and $39, respectively.
NOTE 4 - GOODWILL
The Company has goodwill resulting from a business combination with Prima
and had patents acquired through the acquisition of Benetone, which
expired. Goodwill is being amortized on the straight-line method over
fifteen (15) years. The amortization expense for the years ended June 30,
1999 and 1998 amounted to approximately $48 for each year.
NOTE 5 - DUE TO OFFICERS
Due to officers, represents advances made by two officers of the Company,
which are non-interest bearing and have no definite repayment terms.
NOTE 6 - 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 ("NOL") carryforwards.
Differences between income tax benefits computed at the Federal statutory
rate (34%) and reported income taxes for 1999 and 1998 are primarily
attributable to the valuation allowance for the NOL and other permanent
differences.
As of June 30, 1999 the Company's total deferred tax assets amounted to
approximately $2,013, which relate primarily to NOL carryforwards, and
the tax effect of differences in financial and income tax reporting for
amortization methods, and the related valuation allowance. Management
concluded a full valuation allowance on the deferred tax assets was
appropriate due to the Company's failure to file its federal and state
tax returns.
As of June 30, 1999, the Company estimated the available NOL
carryforwards to be approximately $2,775, subject to certain limitations,
which will expire on various dates through 2020. The amount and
utilization of the NOL carryforwards cannot be determined at June 30,
1999 based upon the information available.
F-15
<PAGE>
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
- --------------------------------------------------------------------------------
NOTE 7 - COMMITMENTS AND CONTINGENCIES
LEASING ARRANGEMENTS
The Company leases its New York and Los Angeles offices through five-year
non-cancelable lease agreements expiring in December 2002 and December
2003, respectively. In addition, the Company leases certain equipment
under non-cancelable operating leases that expire in the year ending June
30, 2004.
Future minimum rental commitments under such noncancellable operating
leases as of June 30, 1999 are as follows:
FOR THE YEAR
ENDING JUNE 30, AMOUNT
----------------------------------------------
2000 $131
2001 133
2002 135
2003 98
2004 28
----
Total $525
====
Rent expense for the years ended June 30, 1999 and 1998 was $99 and $83,
respectively.
ROYALTY
Benatone was committed to pay royalties of approximately four (4) cents
per electrical plug sold, through the year 2011. Due to the disposal of
Benatone, the Company will not pay royalties effective June 30, 1999 (see
Note 11).
CONTINGENCY
In December 1997, Prima entered into an Agreement with an unrelated third
party to sell certain assets and liabilities (see Note 2). Pursuant to
this Agreement, Prima assigned the studio lease to the buyer. The future
commitments under the lease at June 30, 1999 amounted to $784 through
October 2007. Prima is contingently liable for these commitments in case
the buyer is in defaults on such payments.
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 $503 together with interest thereon from January 30, 1997. On
May 6, 1999, a judgement was entered against the defendants in this
matter, including Prima. However, the judgement provides that to the
extent Prima is required to pay any sums to the bank, Prima is entitled
to a judgement against Edward Stein, a co-defendant.
F-16
<PAGE>
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
- --------------------------------------------------------------------------------
NOTE 7 - COMMITMENTS AND CONTINGENCIES, continued
LITIGATION, continued
Since Prima cannot determine whether the co-defendant has sufficient
assets to reimburse Prima for any potential loss, Prima has established a
reserve of $503.
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, the interim reports on Form 10-QSB for the quarters
ended September 30, and December 31, 1996. Subsequent to the consent 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 years ended June 30, 1998 and 1997; and the interim
reports on Form 10-QSB for the quarters ended September 30, December 31,
1997 and September 30, December 31, 1998 and March 31, 1999. The Company
has since filed each of the reports mentioned in the civil action.
However, this Annual Report for the year ended June 30, 1999 is being
filed late and the Company is still delinquent with the filing of its
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999.
The Company intends to file this Quarterly Report within the next week.
Management believes that its violation of the SEC injunction will not
have a material adverse effect on the financial position of the Company.
NOTE 8 - STOCKHOLDERS' EQUITY
PREFERRED STOCK OF SUBSIDIARY
SERIES A CONVERTIBLE PREFERRED STOCK
In May 1998, Diva-Florida 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. As of June 30, 1998, 221,000 shares
of common stock were sold for $442. These shares were subscribed and not
yet formally issued at April 28, 1999. In connection with the Acquisition
(see Note 1), the subscribers of the 200,000 Diva-Florida's shares
converted their subscribed shares to 200 shares of Diva-Delaware's Series
A Convertible Preferred Stock (the "Series A Preferred"). Diva-Florida
returned $42 to the subscriber who held 21,000 subscribed shares of
Diva-Florida's common stock. In connection with the conversion,
Diva-Delaware authorized the designation of 1,721 shares of the Series A
Preferred. The Company incurred $30 of placement agent fees in connection
with this offering.
F-17
<PAGE>
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
- --------------------------------------------------------------------------------
NOTE 8 - STOCKHOLDERS' EQUITY
PREFERRED STOCK OF SUBSIDIARY
SERIES A CONVERTIBLE PREFERRED STOCK
Diva-Delaware immediately commenced a private placement offering of its
Series A Preferred after the Acquisition (see Note 1), wherein it proposed
to sell up to 750 shares of Series A Preferred at a price of $2,000 per
share. At June 30, 1999, 375 shares of the Series A Preferred were sold for
$750, which was received in cash and 375 shares were subscribed for $750.
The balance is payable when Diva-Delaware files an amendment to the
registration statement for the shares of its common stock underlying the
Series A Preferred which amendment incorporates the audited financial
statements for the fiscal year ended June 30, 1999. The Company incurred
$30 of placement agent fees in connection with this offering.
The Series A Preferred holders are entitled to receive cumulative
preferential dividends at $60 per share per annum, payable annually on each
anniversary date of issuance. In the option of the Diva-Delaware, such
dividend may be paid in cash or in shares of Diva-Delaware's common stock
valued at the Conversion Rate, as defined. As of June 30, 1999, total
cumulated dividends amounted to $9. In addition, the Series A Preferred are
subject to certain conversion, redemption, and liquidation provisions, as
defined in the Certificate of Designation.
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK
In connection with the Acquisition (see Note 1), JRCI converted $3,000 of
debt, owned to it by Diva-Florida and Subsidiaries, into 3,000 shares of
Series B Redeemable Convertible Preferred Stock (the "Series B Preferred")
of Diva-Delaware. In connection with the conversion, Diva-Delaware
authorized the designation of 3,000 shares of Series B Preferred.
The Series B Preferred holders are entitled to receive cumulative
preferential dividends at $30 per share per annum, payable annually on each
anniversary date of issuance. In the option of the Diva-Delaware, such
dividend may be paid in cash or in shares of Diva-Delaware's common stock
valued at the Conversion Rate, as defined. As of June 30, 1999, total
cumulated dividends amounted to $23. In addition, the Series B Preferred
are subject to certain conversion, redemption, and liquidation provisions,
as defined in the Certificate of Designation.
OPTION AGREEMENT
JRCI and Diva-Delaware also entered into an Option Agreement giving JRCI
the option to purchase additional shares of Diva-Delaware's Common stock at
its par value of $.001 per share in order for JRCI to maintain JRCI's
ownership of the outstanding shares of Diva-Delaware's common stock at no
less than 65%. The option expires when all of the shares of Diva-Delaware's
Series A Preferred have been converted into shares of Diva-Delaware's
common stock.
F-18
<PAGE>
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
- --------------------------------------------------------------------------------
NOTE 9 - MINORITY INTEREST
The minority interest is held by a small group of outside investors who own
approximately 23% of Diva-Delaware. 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 being 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 operated two principal business segments: model agency and
electrical accessories, which was sold at June 30, 1999 (see Note 11). A
summary of the Company's operations by business segments for the years
ended June 30, 1999 and 1998, is as follows:
MODEL ELECTRICAL
AGENCY ACCESSORIES ELIMINATIONS TOTAL
---------------------------------------------
1999
-----------------------
Continued Operations
Revenue $1,814 $ -- $ -- $1,814
Operating loss (830) -- (416) (1,246)
Identifiable assets 2,576 -- (270) 2,306
Capital expenditures 161 -- -- 161
Depreciation and
amortization 128 -- -- 128
Discontinued Operations -- (64) -- (64)
MODEL ELECTRICAL
AGENCY ACCESSORIES ELIMINATIONS TOTAL
---------------------------------------------
1998
-----------------------
Continued Operations
Revenue $1,466 -- $ -- $1,466
Operating loss (111) -- (245) (356)
Identifiable assets 1,744 -- 114 1,858
Capital expenditures 293 -- -- 293
Depreciation and
amortization 74 -- 13 87
Discontinued Operations -- (247) -- (247)
F-19
<PAGE>
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
- --------------------------------------------------------------------------------
NOTE 10 - SEGMENT INFORMATION, continued
GEOGRAPHIC SEGMENTS
The Company's operated in two geographic business segments: The United
States of America and the United Kingdom. The segment in the United
Kingdom was sold at June 30, 1999 (see Note 11). A summary of the
Company's operations by geographic segments for the years ended June 30,
1999 and 1998, is as follows:
UNITED UNITED
STATES KINGDOM TOTAL
-------------------------------------
1999
-----------------------------
Continued Operations
Revenue $1,814 $ -- $1,814
Operating loss (1,246) -- (1,246)
Identifiable assets 2,306 -- 2,306
Capital expenditures 161 -- 161
Depreciation and amortization 128 -- 128
Discontinued Operations -- (64) (64)
UNITED UNITED
STATES KINGDOM TOTAL
-------------------------------------
1998
-----------------------------
Continued Operations
Revenue $1,466 -- 1,466
Operating loss (356) -- (356)
Identifiable assets 1,858 -- 1,858
Capital expenditures 293 -- 293
Depreciation and amortization 87 -- 87
Discontinued Operations -- (247) (247)
NOTE 11 - DISPOSAL OF INVESTMENT IN SUBSIDIARY
On June 30, 1999, JRCI sold its entire interest in Benatone to an
unrelated party for the sum of 10.00 pound, which is equivalent to
sixteen U.S. dollars. The net loss on the disposal of the investment in
Benatone after the rate exchange adjustment was $64. The disposal of
Benatone is being accounted for as discontinued operations. Accordingly,
the accompanying financial statements for the years ended June 30, 1999
and 1998 have been presented in accordance with APB opinion 30.
F-20
<PAGE>
J R CONSULTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except shares and per share information)
- --------------------------------------------------------------------------------
NOTE 12 - GOING CONCERN UNCERTAINTY
As shown in the accompanying financial statements, the Company incurred a
net loss of $1,310 during the year ended June 30, 1999. As of June 30,
1999, the Company's current liabilities exceeded its current assets by
$1,236, and its total liabilities exceeded its total assets by $805.
These factors, as well as the uncertain conditions that the Company faces
in its day-to-day operations, create an uncertainty as to the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments that might be necessary should the Company be
unable to continue as a going concern.
Management has taken action and is formulating additional plans to
strengthen the Company's working capital position and generate sufficient
cash to meet its operating needs through June 30, 2000 and beyond. Among
the actions taken, the Company is to receive $750 from the subscription
of its Series A Preferred (see Note 8). In addition, the Company also
anticipates generating more revenue through opening model agencies in
additional areas, consummation of the transactions as described in Note
13 and obtaining additional funds through private placement offerings of
its securities. No assurances can be made that the management will be
successful in achieving its plan.
NOTE 13 - SUBSEQUENT EVENT
On October 28, 1999, JRCI entered into a corporate combination agreement
(the "Agreement") with Providential Securities, Inc. ("Providential"),
whereby JRCI will acquire 20,000,000 shares of the issued and outstanding
capital stock of Providential in exchange for 30,000,000 shares of JRCI's
common stock (the "JRCI Shares"). Under the Agreement, JRCI will effect a
1-for-2 reverse stock split, as described in the Agreement, prior to the
consummation of this transaction. It is intended that this transaction
shall qualify as a transaction in securities exempt from registration or
qualification under the Securities Act of 1933, as amended. The JRCI
Shares will be restricted against resale pursuant to the provisions of
Federal and state securities laws.
Consummation of the transaction is subject to a number of conditions,
including the Company obtaining the consent of the Board of Directors and
a majority of the shareholders and Providential obtaining the approval of
the National Association of Securities Dealers, Inc. No assurance can be
given that these conditions will be met and that the transaction will be
consummated.
F-21
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
J R CONSULTING INC.
Date: January 7, 2000 By: /s/ Peter C. Zachariou
--------------------------------
Peter C. Zachariou, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Company and in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
/s/ Peter C. Zachariou
- ----------------------
PETER C. ZACHARIOU President/Principal January 7, 2000
Executive and Director
- ----------------------
GABRIEL HARRIS Director January _, 2000
/s/ David Lean
- ----------------------
DAVID LEAN Principal Accounting January 7, 2000
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.
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.12 Corporate Combination Agreement with Providential Securities, Inc.
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
EXHIBIT 10.12
CORPORATE COMBINATION AGREEMENT
This Corporate Combination Agreement (the "Agreement") effective
October 28th, 1999, is by and between JR Consulting, Inc., a Nevada corporation
("JRCI"), having its principal offices at 180 Varick Street, 13th Floor, New
York, New York 10014, Providential Securities, Inc., a California corporation
("PROVIDENTIAL"), and the holders of 1,000,000 or more shares of PROVIDENTIAL
common stock as of October 25, 1999 (the "Majority Shareholders"), all of which
are listed on Exhibit A to this Agreement.
RECITALS:
A. JRCI desires to acquire all of the issued and outstanding capital
stock of Providential and the Majority Shareholders of PROVIDENTIAL desire to
exchange all of their shares of PROVIDENTIAL capital stock for shares of JRCI
authorized but unissued shares of stock as hereinafter provided.
B. It is the intention of the parties hereto that: (i) JRCI shall
acquire all of the issued and outstanding capital stock of PROVIDENTIAL in
exchange solely for the number of shares of JRCI's authorized but unissued
shares of common stock, par value $.001 ("Common Stock"), set forth below (the
"Exchange"); and (ii) and the Exchange shall qualify as a transaction in
securities exempt from registration or qualification under the Securities Act of
1933, as amended, and under the applicable securities laws of each state or
jurisdiction where all of the shareholders of PROVIDENTIAL (the "Shareholders")
reside.
C. The board of directors of JRCI deems it to be in the best interest
of JRCI and its shareholders to acquire all of the issued and outstanding
capital stock of PROVIDENTIAL.
D. The board of directors of PROVIDENTIAL and the Majority Shareholders
deem it to be in the best interest of the Shareholders to exchange all of the
capital stock of PROVIDENTIAL for shares of JRCI, as hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
SECTION 1. EXCHANGE OF SHARES
1.1 EXCHANGE OF SHARES. JRCI and the Majority Shareholders hereby agree
that the Shareholders shall, on the Closing Date (as hereinafter defined),
exchange all of the issued and outstanding shares of PROVIDENTIAL for 30,000,000
shares of JRCI (the "JRCI Shares"), which number of JRCI Shares assumes the
effectuation of a 2-for-1 reverse stock split as described herein. The JRCI
SHARES will be restricted against resale pursuant to the provisions of Federal
and state securities laws. Notwithstanding the foregoing, certain
1
<PAGE>
minority shareholders of PROVIDENTIAL may, for whatever reason, not tender their
shares for exchange. Any shares not tendered will remain issued and outstanding
as to PROVIDENTIAL, which will in turn become a subsidiary of JRCI. The
PROVIDENTIAL stock to be tendered (20,000,000 shares) will represent all of the
issued and outstanding stock of PROVIDENTIAL, plus any shares subscribed for or
committed by virtue of a private placement to take place on October 27, 1999,
and any shares reserved for issuance to the holders of preferred shares
(cumulatively, the "Providential Shares"). The PROVIDENTIAL Shares owned by each
Shareholder and the number of JRCI Shares which each will receive in the
Exchange are set forth in Exhibit A hereto. To the extent any holders of
PROVIDENTIAL shares do not tender their PROVIDENTIAL shares for exchange, the
number of JRCI Shares to be issued shall be reduced.
1.2 DELIVERY OF SHARES. On the Closing Date, the Shareholders wishing
to exchange PROVIDENTIAL Shares for JRCI Shares (the "Exchanging Shareholders")
will deliver to JRCI the certificates representing the Providential Shares, duly
endorsed (or with executed stock powers) so as to make JRCI the sole owner
thereof. Within 5 business days of the Closing Date, JRCI will deliver
certificates representing the JRCI Shares to the exchanging Shareholders.
1.3 RESTRICTED SECURITIES. The JRCI Shares have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and may not
be resold unless the resale thereof is registered under the Securities Act or an
exemption from such registration is available. Each certificate representing the
JRCI Shares will have a legend thereon in substantially the following form:
THE SHARES REPRESENTED BY THE CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE RESALE OF
THE SHARES UNDER THE ACT UNLESS IN THE OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY, REGISTRATION IS NOT REQUIRED UNDER THE ACT.
1.4 REGISTRATION RIGHTS AND AGREEMENTS. The JRCI Shares being issued to
the Shareholders will carry "piggyback" registration rights, such that if any
registration of JRCI stock occurs during the first year after Closing, then 20%
of the JRCI Shares will be registered. If no such registration is filed during
the first year, then 40% of the total number of JRCI Shares still held by
PROVIDENTIAL Shareholders will be registered (or become unrestricted) during the
ensuing year, solely for the benefit of the former PROVIDENTIAL Shareholders.
During the second subsequent year, 60% of the unregistered, or restricted, JRCI
Shares of the Shareholders will be registered. In any year in which a
registration statement is filed, PROVIDENTIAL Shareholders will have a
percentage of their shares registered that is equal or greater than the
registration of any other then-existing shareholders of JRCI. The number of
shares to be registered in any such registration statement shall be allocated
pro rata among the Shareholders. Thus, if in the first year, 20%
2
<PAGE>
of the JRCI Shares are to be registered, then each Shareholder shall be entitled
to include in the registration statement 20% of the JRCI Shares owned by that
Shareholder. If any of the registrations are not timely accomplished, then the
PROVIDENTIAL Shareholders may cause the registration to occur at JRCI expense.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF PROVIDENTIAL AND THE
MAJORITY SHAREHOLDERS
PROVIDENTIAL and the Majority Shareholders, jointly and not severally,
hereby represent and warrant as follows:
2.1 ORGANIZATION AND GOOD STANDING. PROVIDENTIAL is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. PROVIDENTIAL has the corporate power and authority to carry on its
business as presently conducted. PROVIDENTIAL is qualified to do business in all
jurisdictions where the failure to be so qualified would have a material adverse
effect on its business.
2.2 CORPORATE AUTHORITY. PROVIDENTIAL has the corporate power to enter
into this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transaction contemplated
hereby have been duly authorized by the Board of Directors and a majority of the
Shareholders of PROVIDENTIAL. The execution and performance of this Agreement
will not constitute a material breach of any agreement, indenture, mortgage,
license or other instrument or document to which PROVIDENTIAL is a party and
will not violate any judgment, decree, order, writ, rule, statute, or regulation
applicable to PROVIDENTIAL or its properties. The execution and performance of
this Agreement will not violate or conflict with any provision of the
Certificate of Incorporation or by-laws of PROVIDENTIAL.
2.3 OWNERSHIP OF SHARES. The Shareholders described on Exhibit A are
the owners of record and beneficially of all of the issued and outstanding
shares of capital stock of PROVIDENTIAL. Each Majority Shareholder represents
and warrants that he, she or it owns such shares free and clear of all rights,
claims, liens and encumbrances, and the shares have not been sold, pledged,
assigned or otherwise transferred except pursuant to this Agreement.
2.4 RECEIPT OF CORPORATE INFORMATION; INDEPENDENT INVESTIGATION;
ACCESS. All requested publicly-available documents, records and books pertaining
to JRCI and the JRCI Shares have been delivered to the Shareholder and/or its
advisors. All of the Shareholder's questions and requests for information have
been answered to the Shareholder's satisfaction. Shareholder acknowledges that
Shareholder, in making the decision to exchange the Providential Shares for JRCI
Shares, has relied upon independent investigations made by it and its
representatives, if any, and Shareholder and such representatives, if any, have,
prior to the Closing Date, been given access to and the opportunity to examine
all material
3
<PAGE>
contracts and documents relating to this offering and an opportunity to ask
questions of, and to receive information from, JRCI or any person acting on its
behalf concerning the terms and conditions of this Agreement. Shareholder and
its advisors, if any, have been furnished with access to all publicly available
materials relating to the business, finances and operation of JRCI and materials
relating to the offer and sale of the JRCI Shares which have been requested.
Shareholder and its advisors, if any, have received complete and satisfactory
answers to any such inquiries.
2.5 RISKS. The Shareholder acknowledges and understands that the
purchase of the JRCI Shares involves a high degree of risk and is suitable only
for persons of adequate financial means who have no need for liquidity in this
investment in that (i) the Shareholder may not be able to liquidate the
investment in the event of an emergency; (ii) transferability is extremely
limited; and (iii) in the event of a disposition, the Shareholder could sustain
a complete loss of its entire investment. The Shareholder is sufficiently
experienced in financial and business matters to be capable of evaluating the
merits and risks of an investment in JRCI; has evaluated such merits and risks,
including risks particular to the Shareholder's situation; and the Shareholder
has determined that this investment is suitable for the Shareholder. The
Shareholder has adequate financial resources and can bear a complete loss of the
Shareholder's investment.
2.6 INVESTMENT INTENT. The Shareholder hereby represents that the JRCI
Shares are being acquired for the Shareholder's own account with no intention of
distributing such securities to others. The Shareholder has no contract,
undertaking, agreement or arrangement with any person to sell, transfer or
otherwise distribute to any person or to have any person sell, transfer or
otherwise distribute the Shares for the Shareholder. The Shareholder is
presently not engaged, nor does the Shareholder plan to engage within the
presently foreseeable future, in any discussion with any person regarding such a
sale, transfer or other distribution of the Shares or any interest therein.
2.7 COMPLIANCE WITH FEDERAL AND STATE SECURITIES LAWS. The Shareholder
understands that the JRCI Shares have not been registered under the Securities
Act. The Shareholder understands that the JRCI Shares must be held indefinitely
unless the sale or other transfer thereof is subsequently registered under the
Securities Act or an exemption from such registration is available. Moreover,
the Shareholder understands that its right to transfer the JRCI Shares will be
subject to certain restrictions, which include restrictions against transfer
under the Securities Act and applicable state securities laws. In addition to
such restrictions, the Shareholder realizes that it may not be able to sell or
dispose of the JRCI Shares as there may be no public or other market for them.
The Shareholder understands that certificates evidencing the Shares shall bear a
legend substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY APPLICABLE STATE LAW.
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THEY MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED UNLESS
REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE LAW OR
PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS
2.8 APPROVALS. No approval, authorization, consent, order or other
action of, or filing with, any person, firm or corporation or any court,
administrative agency or other governmental authority is required in connection
with the execution and delivery of this Agreement by the Shareholder or the
consummation of the transactions described herein.
2.9 NO GENERAL SOLICITATION. Shareholder is not purchasing the JRCI
Shares because of or following any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio, or presented at any seminar or meeting, or any
solicitation or a subscription by a person other than a representative of JRCI.
2.10 BROKER/DEALER COMPLIANCE.
(a) CONSENTS. Schedule 2.10(a) sets forth a complete list of all
consents of governmental or other regulatory agencies, foreign or domestic, and
of other third parties required to be received by or on the part of PROVIDENTIAL
to enable it to enter into and carry out this Agreement and the transactions
contemplated hereby. All such requisite consents have been, or prior to the
Closing will have been, obtained.
(b) REGISTRATION. PROVIDENTIAL is (i) registered as a broker-dealer in
securities with the SEC, (ii) registered as a broker-dealer in securities in the
States listed on Schedule 2.10(b), and (iii) is a member organization in good
standing with the NASD, SIPC and the MSRB, if currently a member thereof.
(c) REGULATORY FILINGS. PROVIDENTIAL's tax returns, Form BD, amendments
thereto, supervisory procedures, compliance manual, FOCUS Reports, audited
financial statements, Forms U-4, Forms U-5, NASD and SIPC reports and
assessments, SIC Agreement Form for Indirect Inquiries, Registration Form for
the Lost and Stolen Securities Program, fidelity bond, and all other forms,
reports, statements, documents, books and records were properly and timely filed
with the appropriate regulatory authority where the failure to do so may result
in a censure, sanction, violation, penalty, fine, assessment, "acceptance,
waiver and consent" or other disciplinary charge, allegation or finding of
wrongdoing by such regulatory or governmental authority, or which may otherwise
require disclosure on any application, form, report, letter, opinion, agreement,
contract, instrument, note, document or paper which may be filed with any such
regulatory authority, insurance carrier, surety, bank or other financial or
securities-related institution now, or hereafter.
(d) APPROVAL AND NET CAPITAL REQUIREMENTS. PROVIDENTIAL has secured all
necessary approvals from all appropriate regulatory authorities to conduct its
business as a securities
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broker-dealer; and PROVIDENTIAL has always had, except for the incident
described in Schedule 2.10(e), and continues to be in compliance with, its
minimum net capital requirement in accordance with Rules 15c3-1 and 17a-11 under
the Exchange Act and its Restriction Agreement with the NASD, as amended from
time to time, through and including the Closing Date; and PROVIDENTIAL since it
originally applied for registration as a broker-dealer through the Closing Date,
PROVIDENTIAL has maintained the minimum net capital it has been required to
maintain under such Rules, its NASD Restriction Agreement and each amendment
thereto, and the applicable rules and regulations of the State of California and
every other jurisdiction in which the Corporation is currently registered as a
broker-dealer.
(e) COMPLIANCE WITH REPORTING REQUIREMENTS. PROVIDENTIAL has always
been and continues to be in compliance with the financial reporting and filing
requirements of the SEC, NASD, the States of California and every other
jurisdiction in which it is currently registered as a broker-dealer, through and
including the Closing Date, and has filed timely all required FOCUS Reports,
audited financial statements, amendments to Form BD, Forms U-4, Forms U-5, NASD
and SIPC reports and assessments, its SIC Agreement Form for Indirect Inquiries,
Registration Form for the Lost and Stolen Securities Program, and all other
forms, reports, statements and documents which were required to be so filed with
the SEC, NASD, the State of California and all other jurisdictions in which it
is currently registered as a broker-dealer, and all other regulatory authorities
which had, or do have jurisdiction over PROVIDENTIAL and its business, where the
failure to do so may result in a regulatory authority imposing, levying or
determining grounds for a censure, sanction, violation, penalty, fine,
assessment, "acceptance, waiver and consent" or other disciplinary charge or
allegation of wrongdoing, or which may otherwise require disclosure on any
application, form, report, letter, opinion, agreement, contract, instrument,
note, document, or paper which may be filed with any such regulatory or
governmental authority, insurance carrier, surety, bank, other financial or
securities-related institution, now or hereafter; PROVIDENTIAL has paid all
requisite fees, assessments, late charges, fines and penalties, if any, in
connection therewith; and the information contained in such forms, reports,
statements and documents was and is true and correct in all respects.
(f) BOOKS AND RECORDS. PROVIDENTIAL has established, maintained and
preserved all books and records required to be so established, maintained and
preserved in accordance with Rules 17a-3, 17a-4 and 17a-5 under the Exchange
Act.
(g) SECURITIES TRANSACTIONS. PROVIDENTIAL has not effected or attempted
to effect any securities transaction for its own account or any customer,
including, but not limited to, a shareholder, director, officer, employee or
agent of Providential, except in accordance with the laws and applicable rules
and regulations of the Regulators.
(h) INVESTMENT ADVISORY SERVICES. PROVIDENTIAL has not performed any
investment advisory services for any person or entity.
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(i) YEAR 2000 COMPLIANCE. PROVIDENTIAL has resolved any and all Year
2000 issues related to its own systems and those of its major customers and
providers and will not experience any material system failures or
miscalculations causing disruptions to its activities and operations.
PROVIDENTIAL has submitted to the NASD the appropriate documents demonstrating
that PROVIDENTIAL's computer systems are Year 2000 compliant.
2.11 FINANCIAL STATEMENTS, BOOKS AND RECORDS. Attached as Exhibit 2.11
are the audited financial statements (balance sheet, income statement, notes) of
PROVIDENTIAL as of December 31, 1998 and for the previous fiscal year, and
unaudited quarterly statements through June 30, 1999 (the "Financial
Statements"). The Financial Statements fairly represent the financial position
of PROVIDENTIAL as at such dates and the results of its operations for the
periods then ended. The Financial Statements were prepared in accordance with
generally accepted accounting principles applied on a consistent basis with
prior periods except as otherwise stated therein. The books of account and other
financial records of PROVIDENTIAL are in all respects complete and correct in
all material respects and are maintained in accordance with good business and
accounting practices.
2.12 NO MATERIAL ADVERSE CHANGES. Since June 30, 1999 there has not
been:
(i) any material adverse change in the financial
position of PROVIDENTIAL except changes arising in the
ordinary course of business, which changes will in no event
materially and adversely affect the financial position of
PROVIDENTIAL;
(ii) any damage, destruction or loss materially
affecting the assets, prospective business, operations or
condition (financial or otherwise) of PROVIDENTIAL whether or
not covered by insurance;
(iii) any declaration, setting aside or payment of
any dividend or distribution with respect to any redemption or
repurchase of PROVIDENTIAL capital stock, except for the
Private Placement conducted October 27, 1999;
(iv) any sale of an asset (other than in the ordinary
course of business) or any mortgage or pledge by PROVIDENTIAL
of any properties or assets; or
(v) adoption of any pension, profit sharing,
retirement, stock bonus, stock option or similar plan or
arrangement.
2.13 TAXES. PROVIDENTIAL has filed all material tax, governmental
and/or related forms and reports (or extensions thereof) due or required to be
filed and has paid or made adequate provisions for all taxes or assessments
which had become due as of the Closing Date, and there are no deficiency notices
outstanding. No extensions of time for the
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assessment of deficiencies for any year is in effect. No deficiency notice is
proposed or, to the knowledge of the Major Shareholders after reasonable
inquiry, threatened against PROVIDENTIAL. The tax returns of PROVIDENTIAL have
never been audited.
2.14 COMPLIANCE WITH LAWS. PROVIDENTIAL has complied with all federal,
state, county and local laws, ordinances, regulations, inspections, orders,
judgments, injunctions, awards or decrees applicable to it or its business
which, if not complied with, would materially and adversely affect the business
of PROVIDENTIAL.
2.15 NO BREACH. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not:
(i) violate any provision of the Certificate of
Incorporation or By-Laws of PROVIDENTIAL;
(ii) violate, conflict with or result in the breach
of any of the terms of, result in a material modification of,
otherwise give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time, or
both constitute) a default under any contract or other
agreement to which PROVIDENTIAL is a party or by or to which
it or any of its assets or properties may be bound or subject;
(iii) violate any order, judgment, injunction, award
or decree of any court, arbitrator or governmental or
regulatory body against, or binding upon, PROVIDENTIAL or upon
the properties or business of PROVIDENTIAL; or
(iv) violate any statute, law or regulation of any
jurisdiction applicable to the transactions contemplated
herein which could have a material, adverse effect on the
business or operations of PROVIDENTIAL.
2.16 ACTIONS AND PROCEEDINGS. PROVIDENTIAL is not a party to any
material pending litigation or, to the knowledge of the Majority Shareholders,
after reasonable inquiry, any governmental investigation or proceeding not
reflected in the PROVIDENTIAL Financial Statements and, to their best knowledge,
no material litigation, claims, assessments or non-governmental proceedings are
threatened against PROVIDENTIAL except as set forth on Schedule 2.16 attached
hereto and made a part hereof.
2.17 AGREEMENTS. Schedule 2.17 sets forth any material contract or
arrangement to which PROVIDENTIAL is a party or by or to which it or its assets,
properties or business are bound or subject, whether written or oral.
2.18 BROKERS OR FINDERS. No broker's or finder's fee will be payable by
PROVIDENTIAL in connection with the transactions contemplated by this Agreement,
nor will any such fee be incurred as a result of any actions by PROVIDENTIAL or
any of its
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Shareholders.
2.19 REAL ESTATE. Except as set forth on Schedule 2.19, PROVIDENTIAL
owns no real property nor is a party to any leasehold agreement. All uses of the
real property by Providential or its subsidiaries conform in all material
respects to all applicable building and zoning ordinances, laws and regulations.
2.20 OSHA AND ENVIRONMENTAL COMPLIANCE. Providential has duly complied
with, and its offices, real property, business, assets, leaseholds and equipment
are in compliance in all material respects with, the provisions of the Federal
Occupational Safety and Health Act, the Environmental Protection Act, and all
other environmental laws. There have been no outstanding citations, notices or
orders of non-compliance issued to PROVIDENTIAL or relating to its business,
assets, property, leaseholders or equipment under such laws, rules or
regulations.
PROVIDENTIAL has been issued all required federal, state and
local licenses, certificates or permits relating to all applicable environmental
laws. There are no visible signs of releases, spills, discharges, leaks or
disposal (collectively, referred to as "Releases") of hazardous substances at,
upon, under or within the real property owned by Providential. There are no
underground storage tanks or polycholorinated biphenyls on the real property. To
the best of the Majority Shareholders' knowledge, after reasonable inquiry, the
real property has never been used as a treatment, storage or disposal facility
of hazardous waste. To the best of the Majority Shareholders' knowledge, after
reasonable inquiry, no hazardous substances are present on the real property or
any premises leased by Providential excepting such quantities as are handled in
accordance with all applicable manufacturer's instructions and governmental
regulations and in the proper storage containers and as are necessary for the
operation of the commercial business of Providential.
2.21 TANGIBLE ASSETS. PROVIDENTIAL has full title and interest in all
machinery, equipment, furniture, leasehold improvements, fixtures, projects,
owned or leased by PROVIDENTIAL, any related capitalized items or other tangible
property material to the business of PROVIDENTIAL (the "Tangible Assets"). Other
than as set forth in Section 2.21. PROVIDENTIAL holds all rights, title and
interest in all the Tangible Assets owned by it on the Balance Sheet or acquired
by it after the date on the Balance Sheet free and clear of all liens, pledges,
mortgages, security interests, conditional sales contracts or any other
encumbrances. All of the Tangible Assets are in good operating condition and
repair and are usable in the ordinary course of business of PROVIDENTIAL and
conform to all applicable laws, ordinances and government orders, rules and
regulations relating to their construction and operation, except as set forth on
Schedule 2.21 hereto. Providential has clear title to all of its fictional
business names, trading names, registered and unregistered trademarks, service
marks and applications (collectively, the "Marks") and these items of
"Intellectual Property" are included as Tangible Assets
2.22 LIABILITIES. PROVIDENTIAL did not have any direct or indirect
indebtedness,
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liability, claim, loss, damage, deficiency, obligation or responsibility, known
or unknown, fixed or unfixed, liquidated or unliquidated, secured or unsecured,
accrued or absolute, contingent or otherwise, including, without limitation, any
liability on account of taxes, any governmental charge or lawsuit (all of the
foregoing collectively defined to as "Liabilities"), which are not fully, fairly
and adequately reflected on the Financial Statement, except for a specific
Liabilities set forth on Schedule 2.22 attached hereto and made a part hereof.
As of the date of Closing, PROVIDENTIAL will not have any Liabilities, other
than Liabilities fully and adequately reflected on the Financial Statements
except for Liabilities incurred in the ordinary course of business and as set
forth in Schedule 2.22. To the best knowledge of the Shareholders, there is no
circumstance, condition, event or arrangement which may hereafter give rise to
any Liabilities not in the ordinary course of business.
2.23 OPERATIONS OF PROVIDENTIAL. From the date of the Financial
Statements through the date of Closing, PROVIDENTIAL has not and will not have:
(i) incurred any indebtedness or borrowed money;
(ii) declared or paid any dividend or declared or
made any distribution of any kind to any shareholder, or made
any direct or indirect redemption, retirement, purchase or
other acquisition of any shares in its capital stock, other
than the Private Placement occurring on October 27, 1999,
wherein 3,000,000 shares of restricted common stock will be
issued in exchange for $3,750,000 in cash and marketable
securities;
(iii) made any loan or advance to any shareholder,
officer, director, employee, consultant, agent or other
representative or made any other loan or advance otherwise
than in the ordinary course of business;
(iv) except in the ordinary course of business,
incurred or assumed any indebtedness or liability (whether or
not currently due and payable);
(v) disposed of any assets of PROVIDENTIAL except in
the ordinary course of business;
(vi) materially increased the annual level of
compensation of any executive employee of PROVIDENTIAL;
(vii) increased, terminated, amended or otherwise
modified any plan for the benefit of employees of
PROVIDENTIAL;
(viii) issued any equity securities or rights to
acquire such equity securities; or
(ix) except in the ordinary course of business,
entered into or
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modified any contract, agreement or transaction.
2.24 CAPITALIZATION. The authorized capital stock of PROVIDENTIAL
consists of 40,000,000 shares of common stock, no par value, of which 20,000,000
shares are presently issued and outstanding (or committed to be issued), and
20,000,000 shares of preferred stock, with a par value of $5.00 per share, all
of which have been designated Class A Cumulative Preferred Stock, 10,000,000 of
which have been designated Series I Class A Convertible Cumulative Preferred
Stock ("Series I Stock") and 10,000,000 of which have been designated Series II
Class A Cumulative Convertible Preferred Stock ("Series II Stock"), and of which
103,000 shares of Series I Stock and no (0) shares of Series II Stock are
currently issued and outstanding. PROVIDENTIAL is current with respect to all
dividend obligations. Immediately prior to the Closing Date, all of the holders
of Preferred Stock will either convert their shares into shares of Common Stock
on the basis of one share of Common Stock for each share of Preferred Stock, or
will enter into a convertible promissory note, in the amount of their original
investment resulting in the issuance of Preferred Stock, having a right to
convert into Common Stock at the conversion price of $5.00 per share, with a
conversion right limited to two years from the date of Closing. PROVIDENTIAL has
not granted, issued or agreed to grant, issue or make any warrants, options,
subscription rights or any other commitments of any character relating to the
issued or unissued shares of capital stock of PROVIDENTIAL except as set forth
on Schedule 2.24 attached hereto and made a part hereof. PROVIDENTIAL has no
subsidiaries.
2.25 ACCESS TO RECORDS. The corporate financial records, minute books
and other documents and records of PROVIDENTIAL have been made available to JRCI
prior to the Closing hereof.
2.26 FULL DISCLOSURE. No representation or warranty by PROVIDENTIAL or
the Majority Shareholders in this Agreement or in any document or schedule to be
delivered by them pursuant hereto, and no written statement, certificate or
instrument furnished or to be furnished by PROVIDENTIAL pursuant hereto or in
connection with the negotiation, execution or performance of this Agreement
contains or will contain any untrue statement of a material fact or omits or
will omit to state any fact necessary to make any statement herein or therein
not materially misleading or necessary to a complete and correct presentation of
all material aspects of the business of PROVIDENTIAL, and/or the status of the
PROVIDENTIAL Shares.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF JRCI
JRCI hereby represents and warrants as follows:
3.1 ORGANIZATION AND GOOD STANDING. JRCI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada. It has the corporate power to own its own property and to carry on its
business as now being
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conducted and is duly qualified to do business in any jurisdiction where so
required except where the failure to so qualify would have no material adverse
effect on its business.
3.2 CORPORATE AUTHORITY. JRCI has the corporate power to enter into
this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby has been, or will be prior to the Closing Date, duly authorized by the
Board of Directors of JRCI and a majority of the shareholders as required by
Nevada law. The execution and performance of this Agreement will not constitute
a material breach of any agreement, indenture, mortgage, license or other
instrument or document to which JRCI is a party and will not violate any
judgment, decree, order, writ, rule, statute, or regulation applicable to JRCI
or its properties. The execution and performance of this Agreement will not
violate or conflict with any provision of the Articles of Incorporation or
by-laws of JRCI.
3.3 THE JRCI SHARES. At the Closing, the JRCI Shares to be issued and
delivered to the Shareholders hereunder will when so issued and delivered,
constitute valid and legally issued shares of JRCI Common Stock, fully paid and
nonassessable.
3.4 FINANCIAL STATEMENT: BOOKS AND RECORDS. Attached as Exhibit 3.4 are
the audited financial statements (balance sheet, income statement and Notes) of
JRCI for the fiscal year ended June 30, 1998 and unaudited draft financial
statements for the fiscal year ended at June 30, 1999 (collectively the
"Financial Statements"), which are not on file with the EDGAR system. The
Financial Statements fairly represent the financial position of JRCI as at such
date and the results of their operations for the periods then ended. The
Financial Statements were prepared in accordance with generally accepted
accounting principles applied on a consistent basis with prior periods except as
otherwise stated therein. The books of account and other financial records of
JRCI are in all respects complete and correct in all material respects and are
maintained in accordance with good business and accounting practices.
3.5 NO MATERIAL ADVERSE CHANGES.
Except as described on Schedule 3.5, since June 30, 1999, there has not
been:
(i) any material adverse changes in the financial
position of JRCI except changes arising in the ordinary course
of business, which changes will in no event materially and
adversely affect the financial position of JRCI.
(ii) any damage, destruction or loss materially
affecting the assets, prospective business, operations or
condition (financial or otherwise) of JRCI whether or not
covered by insurance;
(iii) any declaration setting aside or payment of any
dividend or distribution with respect to any redemption or
repurchase of JRCI capital
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stock, other than as agreed upon among the parties, with the
acknowledgement that all existing subsidiaries of JRCI will be
sold on or before the Closing on terms to be discussed but
requiring no further commitment of resources by PROVIDENTIAL
OR JRCI following closing;
(iv) any sale of an asset (other than as described in
(iii) above, or in the ordinary course of business) or any
mortgage pledge by JRCI of any properties or assets; or
(v) adoption or modification of any pension, profit
sharing, retirement, stock bonus, stock option or similar plan
or arrangement.
(vi) except in the ordinary course of business,
incurred or assumed any indebtedness or liability, whether or
not currently due and payable;
(vii) any loan or advance to any shareholder,
officer, director, employee, consultant, agent or other
representative or made any other loan or advance otherwise
than in the ordinary course of business;
(viii) any material increase in the annual level of
compensation of any executive employee of JRCI;
(ix) except in the ordinary course of business,
entered into or modified any contract, agreement or
transaction;
(x) issued any equity securities or rights to acquire
equity securities, other than as set forth in Schedule 3.5,
which will include the 2-for-1 reverse agreed upon as a
condition preceding Closing.
3.6 TAXES. JRCI has not filed any tax, governmental and/or related
forms and reports (or extensions thereof) due or required to be filed. JRCI's
accountants are in the process of filing JRCI's tax returns. To the best of
managements' knowledge, JRCI's tax returns will reflect losses for such periods
and any taxes due as a result of such returns will not have a material adverse
effect on JRCI.
3.7 COMPLIANCE WITH LAWS. Except as described on Schedule 3.7, JRCI has
complied with all federal, state, county and local laws, ordinances,
regulations, inspections, orders, judgments, injunctions, awards or decrees
applicable to it or its business, which, if not complied with, would materially
and adversely affect the business of JRCI.
3.8 ACTIONS AND PROCEEDINGS. JRCI is not a party to any material
pending litigation or, to its knowledge, any governmental proceedings are
threatened against JRCI, except as set forth in JRCI's periodic reports filed
with the SEC.
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3.9 PERIODIC REPORTS. JRCI'S periodic reports filed pursuant to the
Securities Exchange Act of 1934, as amended, as of their respective dates, did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstance under which they were made, not misleading.
3.10 CAPITALIZATION. As of the Closing Date, and after the 2-for-1
reverse, there are approximately 1774 shareholders of record that are the owners
of 6,690,629 shares of JRCI Common Stock, none of which owns in excess of 5% of
the issued and outstanding shares, except as may be set forth in JRCI'S periodic
reports filed with the SEC. There are no outstanding warrants, issued stock
options, stock rights or other commitments of any character relating to the
issued or unissued shares of either Common Stock or Preferred Stock of JRCI.
3.11 ACCESS TO RECORDS. The corporate financial records, minute books,
and other documents and records of JRCI have been made available to PROVIDENTIAL
prior to the Closing hereof.
3.12 NO BREACH. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not:
(i) violate any provision of the Articles of
Incorporation or By-Laws of JRCI;
(ii) violate, conflict with or result in the breach
of any of the material terms of, result in a material
modification of, otherwise give any other contracting party
the right to terminate, or constitute (or with notice or lapse
of time or both constitute) a default under, any contract or
other agreement to which JRCI is a party or by or to which it
or any of its assets or properties may be bound or subject;
(iii) violate any order, judgment, injunction, award
or decree of any court, arbitrator or governmental or
regulatory body against, or binding upon, JRCI or upon the
securities, properties or business to JRCI; or
(iv) violate any statute, law or regulation of any
jurisdiction applicable to the transactions contemplated
herein, which violation could have a material adverse effect
on the business or operations of JRCI.
3.13 BROKERS OR FINDERS. No broker's or finder's fee will be payable by
JRCI in connection with the transactions contemplated by this Agreement, nor
will any such fee be incurred as a result of any actions of JRCI.
3.14 CORPORATE AUTHORITY. JRCI has the corporate power to enter into
this
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Agreement and to perform its respective obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transaction contemplated
hereby have been duly authorized by the Board of Directors and a majority of the
Shareholders of JRCI. The execution and performance of this Agreement will not
constitute a material breach of any agreement, indenture, mortgage, license or
other instrument or document to which JRCI is a party and will not violate any
judgment, decree, order, writ, rule, statute, or regulation applicable to JRCI
or its properties. The execution and performance of this Agreement will not
violate or conflict with any provision of the Certificate of Incorporation or
by-laws of JRCI.
3.15 FULL DISCLOSURE. No representation or warranty by JRCI in this
Agreement or in any document or schedule to be delivered by them pursuant
hereto, and no written statement, certificate or instrument furnished or to be
furnished by JRCI pursuant hereto or in connection with the negotiation,
execution or performance of this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state any fact necessary
to make any statement herein or therein not materially misleading or necessary
to complete and correct presentation of all material aspects of the business of
JRCI.
SECTION 4. CONDITIONS PRECEDENT
4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF PROVIDENTIAL
SHAREHOLDERS. All obligations of the Majority Shareholders under this Agreement
are subject to the fulfillment, prior to or as of the Closing Date, as indicated
below, of each of the following conditions:
(a) The representations and warranties by or on
behalf of JRCI contained in this Agreement or in any
certificate or document delivered pursuant to the provisions
hereof shall be true in all material respects at and as of
Closing Date as though such representations and warranties
were made at and as of such time.
(b) JRCI shall have performed and complied in all
material respects, with all covenants, agreements, and
conditions set forth in, and shall have executed and delivered
all documents required by this Agreement to be performed or
complied with or executed and delivered by them prior to or at
the Closing.
(c) On or before the Closing, the Board of Directors
and a majority of the shareholders of JRCI shall have
approved, in accordance with Nevada law, the execution,
delivery and performance of this Agreement and the
consummation of the transaction contemplated herein and
authorized all of the necessary and proper action to enable
JRCI to comply with the terms of the Agreement, to include a
2-for-1 reverse split of the issued and outstanding common
stock.
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(d) JRCI shall have sufficient shares of JRCI Common
Stock authorized but unissued to complete the Exchange.
(e) All instruments and documents delivered to
PROVIDENTIAL and the Shareholders pursuant to provisions
hereof shall be reasonably satisfactory to legal counsel for
PROVIDENTIAL.
(f) The liability to The Long Island Savings Bank
F.S.B. described in the litigation matter styled THE LONG
ISLAND SAVINGS BANK F.S.B. ("LISB") V. PRIMA MANAGEMENT, PRIMA
EASTWEST MODEL MANAGEMENT, INC., KENNETH GODT, EDWARD T. STEIN
AND JEFFRY DASH, Supreme Court of the State of New York County
of Suffolk, Index No. 3904-97, and KENNETH GODT V. THE LONG
ISLAND SAVINGS BANK F.S.B., JR 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), will be satisfied and, in
connection therewith, releases and/or Satisfactions of
Judgment shall have been exchanged among the appropriate
parties.
4.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF JRCI AND JRCI
SHAREHOLDERS. All obligations of JRCI under this Agreement are subject to the
fulfillment, prior to or at Closing, of each of the following conditions:
(a) The representations and warranties by
PROVIDENTIAL and its Majority Shareholders, contained in this
Agreement or in any certificate or document delivered pursuant
to the provisions hereof shall be true in all material
respects at and as of the Closing as though such
representations and warranties were made at and as of such
time;
(b) PROVIDENTIAL and its Shareholders shall have
performed and complied with, in all material respects, with
all covenants, agreements, and conditions set forth in, and
shall have executed and delivered all documents required by
this Agreement to be performed or complied or executed and
delivered by them prior to or at the Closing;
(c) Providential shall have tendered a minimum of
$60,000 and a maximum of $100,000 to JRCI, to be utilized for
purposes of payment of legal and accounting fees incident to
this merger agreement and the reporting obligations of JRCI.
These funds will be the property of JRCI, such that any excess
will remain in JRCI and not be transferred during or
concomitant with the sale of the any subsidiaries. These funds
will also be non-returnable, such that if the transaction
contemplated by this Agreement is not consummated, no portion
of the funds will be returned.
(d) Consent of the National Association of Securities
Dealers, Inc.,
16
<PAGE>
pursuant to Rules 2710, 2720 and 1018 of the NASD Membership
and Registration Rules shall have been obtained.
(e) Each of the exchanging shareholders will execute
a representation letter in the form attached hereto as exhibit
4(e).
(f) JRCI will have effected aa 2-for-1 reverse stock
split of its common stock.
SECTION 5. COVENANTS
5.1 CORPORATE EXAMINATIONS AND INVESTIGATIONS. Prior to the Closing
Date, the parties acknowledge that they have been entitled, through their
employees and representatives, to make such investigation of the assets,
properties, business and operations, books, records and financial condition of
the other as they each may reasonably require. No investigations, by a party
hereto shall, however, diminish or waive any of the representations, warranties,
covenants or agreements of the party under this Agreement.
5.2 FURTHER ASSURANCES. The parties shall execute such documents and
other papers and take such further actions as may be reasonably required or
desirable to carry out the provisions hereof and the transactions contemplated
hereby. Each such party shall use its best efforts to fulfill or obtain the
fulfillment of the conditions to the Closing, including, without limitation, the
execution and delivery of any documents or other papers, the execution and
delivery of which are necessary or appropriate to the Closing.
5.3 REVERSE STOCK SPLIT. JRCI agrees to effect a pre-closing 2-for-1
reverse stock split. After Closing, PROVIDENTIAL agrees that JRCI will not
effect a reverse-stock-split, consolidation or reclassification of its
securities for a period of 1 year from the date of this Agreement.
5.4 SETTLEMENT OF LITIGATION. JRCI will receive a Satisfaction of
Judgment with respect to the litigation matters described in Section 4.1(f) and
(g) above.
5.5 PURCHASE AND SALE OF DIVA. JRCI has reached an agreement to sell to
Havilland Limited ("Havilland"), all of the shares of Diva Entertainment, Inc.
("Diva") owned by JRCI as well as to assign to Havilland all of its rights,
title and interest in that certain Option Agreement dated as of April 1, 1999,
between Diva, formerly known as Quasar Projects Company and JRCI, on the terms
generally described on Schedule 5.5. Within ten business days of the Closing
Date, or such earlier date as Havilland shall request, in its complete and sole
discretion, JRCI will consummate the sale of Diva to Havilland or its designee
on the terms described above.
5.6 CONFIDENTIALITY. In the event the transactions contemplated by this
Agreement
17
<PAGE>
are not consummated, JRCI, PROVIDENTIAL and the Shareholders agree to keep
confidential any information disclosed to each other in connection therewith for
a period of three (3) years from the date hereof; provided, however, such
obligation shall not apply to information which:
(i) at the time of the disclosure was public
knowledge;
(ii) after the time of disclosure becomes public
knowledge (except due to the action of the receiving party);
or
(iii) the receiving party had within its possession
at the time of disclosure; or
(iv) is ordered disclosed by a Court of proper
jurisdiction.
SECTION 6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Notwithstanding any right of either party to investigate the affairs of
the other party and its Shareholders, each party has the right to rely fully
upon representations, warranties, covenants and agreements of the other party
and its Shareholders contained in this Agreement or in any document delivered to
one by the other or any of their representatives, in connection with the
transactions contemplated by this Agreement. All such representations,
warranties, covenants and agreements shall survive the execution and delivery
hereof and the closing hereunder for one year following the Closing.
SECTION 7. INDEMNIFICATION
For a period of three (3) years from the Closing, PROVIDENTIAL'S
Majority Shareholders jointly and severally agree to indemnify and hold harmless
JRCI its officers, directors and principal shareholders, and JRCI agrees to
indemnify and hold harmless the PROVIDENTIAL Shareholders, at all times after
the date of this Agreement against and in respect of any liability, damage, or
deficiency, all actions, suits, proceedings, demands, assessments, judgments,
costs and expenses, including attorneys' fees, incident to any of the foregoing,
resulting from any material misrepresentation made by any indemnifying party to
an indemnified party, an indemnifying party's breach of a covenant or warranty
or an indemnifying party's nonfulfillment of any agreement hereunder, or from
any material misrepresentation or omission from any certificate furnished or to
be furnished hereunder.
If the indemnified party receives written notice of the commencement of
any legal action, suit or proceeding with respect to which the indemnifying
party is or may be obligated to provide indemnification pursuant to this
Section, the indemnified party shall, within 30 days of the receipt of such
written notice, give the indemnifying party written
18
<PAGE>
notice thereof (a "Claim Notice"). Failure to give such Claim Notice within such
30 day period shall not constitute a waiver by the indemnified party or its
rights to indemnity hereunder with respect to such action, suit or proceeding
unless the defense thereof is prejudiced thereby. Upon receipt by the
indemnifying party of a Claim Notice from the indemnified party with respect to
any claim for indemnification which is based upon a claim made by a third party
("Third Party Claim"), the indemnifying party may assume the defense of the
Third Party Claim with counsel of its own choosing, as described below. The
indemnified party shall cooperate in the defense of the Third Party Claim and
shall furnish such records, information and testimony and attend all such
conferences, discovery proceedings, hearings, trials and appeals as may be
reasonably required in connection therewith. The indemnified party shall have
the right to employ its own counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of the indemnified party unless
the indemnifying party shall not have with reasonable promptness employed
counsel to assume the defense of the Third Party Claim, in which event such fees
and expenses shall be borne solely by the indemnifying party. The indemnifying
party shall not satisfy or settle any Third Party Claim for which
indemnification has been sought and is available hereunder, without the prior
written consent of the indemnified party, which consent shall not be delayed or
which shall not be required if the indemnified party is granted a release in
connection therewith. If the indemnifying party shall fail with reasonable
promptness to defend such Third Party Claim, the indemnified party may defend,
satisfy or settle the Third Party Claim at the expense of the indemnifying party
and the indemnifying party shall pay to the indemnified party the amount of such
Loss within ten days after written demand thereof. The indemnification
provisions hereof shall survive the termination of this Agreement.
SECTION 8. DOCUMENTS AT CLOSING AND THE CLOSING
8.1 DOCUMENTS AT CLOSING. At the Closing, the following transactions
shall occur, all of such transactions being deemed to occur simultaneously:
(a) PROVIDENTIAL will deliver, or will cause to be delivered,
to JRCI the following:
(i) a certificate executed by the President and
Secretary of PROVIDENTIAL to the effect that all
representations and warranties made by PROVIDENTIAL under this
Agreement are true and correct as of the Closing, the same as
though originally given to JRCI on said date;
(ii) a certificate from the State of California dated
at or about the Closing to the effect that PROVIDENTIAL is in
good standing under the laws of said State;
(iii) PROVIDENTIAL and its Shareholders shall deliver
an opinion of
19
<PAGE>
its legal counsel, limited as to any portion of the opinion as
to an aspect of the agreement governed by the application of
Delaware or New York law, to JRCI to the effect that:
(a) PROVIDENTIAL is a corporation validly
existing and in good standing under the laws of the
State of California and is duly qualified to do
business in any jurisdiction where so required except
where the failure to so qualify would have no
material adverse impact on the company;
(b) PROVIDENTIAL has the corporate power to
carry on its business as now being conducted; and
(c) This Agreement has been duly authorized,
executed and delivered by PROVIDENTIAL.
(iv) A letter of consent to the transaction from the
NASD.
(v) Stock certificates representing those shares of
PROVIDENTIAL to be exchanged for JRCI Shares will be
delivered, along with duly executed stock powers transferring
such shares to JRCI.
(vi) all other items, the delivery of which is a
condition precedent to the obligations of JRCI, as set forth
in Section 4.
(b) JRCI will deliver or cause to be delivered to PROVIDENTIAL
and the Providential Shareholders:
(i) a certificate from JRCI executed by the President
or Secretary of JRCI, to the effect that all representations
and warranties of JRCI made under this Agreement are true and
correct as of the Closing, the same as though originally given
to PROVIDENTIAL on said date;
(ii) certified copies of resolutions by JRCI Board of
Directors authorizing this transaction; and an opinion of JRCI
counsel as described in Section 4 above;
(iii) certificates from the Nevada Secretary of State
dated at or about the Closing Date that JRCI is in good
standing under the laws of said State;
(iv) an opinion of counsel, limited as to any portion
of the opinion that applies to an aspect governed by the
application of Delaware or Nevada law, dated as of the Closing
to the effect that:
20
<PAGE>
(1) JRCI is a corporation validly existing
and in good standing under the laws of
the State of Nevada;
(2) This Agreement has been duly authorized
executed and delivered by JRCI and is a
valid and binding obligation of JRCI
enforceable in accordance with its
terms;
(3) JRCI, through its Board of Directors
and its shareholders, has taken all
corporate action necessary for
performance under this Agreement;
(4) The documents executed and delivered to
PROVIDENTIAL and the PROVIDENTIAL
Shareholders hereunder are valid and
binding in accordance with their terms
to the shares of JRCI Shares to be
issued pursuant to Section 1.1 hereof,
and such Shares will be duly and
validly issued, fully paid and
non-assessable; and
(5) JRCI has the corporate power to execute
the Agreement, deliver the Shares and
perform under this Agreement.
(vi) resignations of David Lean and Gabriel Harris;
(vii) consent of Peter Zachariou, remaining director,
designating two directors to fill the vacancies created by the
resignations of David Lean and Gabriel Harris, and appointing
new directors and officer;
(viii) resignation of Peter C. Zachariou as an
officer and director;
(ix) release signed by Edward Stein and Satisfaction
of Judgment signed by LISB with respect to the litigation
matters described in Section 4.1(f) above;
(x) all other items, the delivery of which is a
condition precedent to the obligations of PROVIDENTIAL, as set
forth in Section 4 hereof.
8.2 THE CLOSING. The Closing shall take place at the time or place as
may be agreed upon by the parties hereto. At the Closing, the parties shall
provide each other with such documents as may be necessary.
SECTION 9. MISCELLANEOUS
21
<PAGE>
9. 1 WAIVERS. The waiver of a breach of this Agreement or the failure
of any party hereto to exercise any right under this Agreement shall in no way
constitute waiver as to future breach whether similar or dissimilar in nature or
as to the exercise of any further right under this Agreement.
9.2 AMENDMENT. This Agreement may be amended or modified only by an
instrument of equal formality signed by the parties or the duly authorized
representatives of the respective parties.
9.3 ASSIGNMENT. This Agreement is not assignable except by operation of
law.
9.4 NOTICE. Until otherwise specified in writing, the mailing addresses
and fax numbers of the parties of this Agreement shall be as follows:
To: JRCI:
Peter Zachariou, President
180 Varick Street, 13th Floor
New York, New York 10014
Fax: (212) 807-8999
with copy to:
Steven Kuperschmid, Esquire
Certilman, Balin, Adler and Human
90 Merrick Avenue
East Meadow, New York 11554
Fax: (516) 296-7111
To: PROVIDENTIAL:
Henry Fahman, Chairman and CEO
8700 Warner Avenue
Fountain Valley, California 92708
Fax: (714) 596-2052
with copy to:
Dieterich & Associates
11300 West Olympic Boulevard, Suite 800
Los Angeles, California 90064
Fax: (310) 312-6680
Any notice or statement given under this Agreement shall be deemed to have been
given
22
<PAGE>
if sent by registered mail addressed to the other party at the address indicated
above or at such other address which shall have been furnished in writing to the
addressor.
9.5 GOVERNING LAW. This Agreement shall be construed, and the legal
relations be the parties determined, in accordance with the laws of the State of
Delaware, thereby precluding any choice of law rules which may direct the
application of the laws of any other jurisdiction.
9.6 PUBLICITY. No publicity release or announcement concerning this
Agreement or the transactions contemplated hereby shall be issued by either
party hereto at any time from the signing hereof without advance approval in
writing of the form and substance by the other party.
9.7 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules to be attached hereto) and the collateral agreements executed in
connection with the consummation of the transactions contemplated herein contain
the entire agreement among the parties with respect to the exchange and issuance
of the Shares and the JRCI Shares and related transactions, and supersede all
prior agreements, written or oral, with respect thereto.
9.8 HEADINGS. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
9.9 SEVERABILITY OF PROVISIONS. The invalidity or unenforceability of
any term, phrase, clause, paragraph, restriction, covenant, agreement or
provision of this Agreement shall in no way affect the validity or enforcement
of any other provision or any part thereof.
9.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed, shall constitute an original copy
hereof, but all of which together shall consider but one and the same document.
9.11 BINDING EFFECT. This Agreement shall be binding upon the parties
hereto and inure to the benefit of the parties, their respective heirs,
administrators, executors, successors and assigns.
9.12 TAX TREATMENT. JRCI, PROVIDENTIAL and the Majority Shareholders
acknowledge that they each have been represented by their own tax advisors in
connection with this transaction; that none of them has made a representation or
warranty to any of the other parties with respect to the tax treatment accorded
this transaction, or the effect individually or corporately on any party under
the applicable tax laws, regulations, or interpretations; and that no opinion of
counsel or private revenue ruling has been obtained with respect to the effects
of this transaction under the Code.
9.14 PRESS RELEASES. The parties will mutually agree as to the wording
and timing of any informational releases concerning this transaction prior to
and through Closing.
23
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
JR CONSULTING, INC.
a Nevada corporation
By: /s/ PETER ZACHARIOU
-------------------------------------------
Peter Zachariou
President
PROVIDENTIAL SECURITIES, INC.
a California corporation
By: /s/ HENRY FAHMAN
-------------------------------------------
Henry Fahman
President / Chief Executive Officer
SHAREHOLDER SIGNATURES ON NEXT PAGE
<PAGE>
"MAJORITY SHAREHOLDERS:"
/s/ HENRY FAHMAN
- --------------------------------------------
Henry Fahman
/s/ NHI T. LE
- --------------------------------------------
Nhi T. Le
/s/ MYAN THI DOAN
- --------------------------------------------
Myan Thi Doan
/s/ TIMOTHY D. FAHMAN
- --------------------------------------------
Timothy D. Fahman
/s/ HUNG H. NGUYEN
- --------------------------------------------
Hung H. Nguyen
/s/ TINA T. PHAN
- --------------------------------------------
Tina T. Phan
/s/ THEODORE FAHMAN
- --------------------------------------------
Theodore Fahman
/s/
- --------------------------------------------
Synaca, Ltd.
/s/ CHRIS DIETERICH
- --------------------------------------------
Dieterich & Associates (as shareholder)
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
Diva Entertainment, Inc.
(a Delaware corporation)
Diva Entertainment, Inc.
(a Florida corporation)
which is a wholly owned subsidiary of
Diva Entertainment, Inc.,
a Delaware corporation
Prima Eastwest Model Management, Inc.
(a California corporation),
which is a subsidiary of
Diva Entertainment, Inc.,
a Florida corporation
Que Model Management, Inc.
(a New York corporation),
which is a subsidiary of
Diva Entertainment, Inc.,
a Florida corporation
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 1,202
<ALLOWANCES> 158
<INVENTORY> 0
<CURRENT-ASSETS> 1,355
<PP&E> 349
<DEPRECIATION> 97
<TOTAL-ASSETS> 2,306
<CURRENT-LIABILITIES> 2,597
<BONDS> 0
0
0
<COMMON> 535
<OTHER-SE> (2,490)
<TOTAL-LIABILITY-AND-EQUITY> 2,306
<SALES> 1,814
<TOTAL-REVENUES> 1,814
<CGS> 0
<TOTAL-COSTS> 40
<OTHER-EXPENSES> 3,019
<LOSS-PROVISION> 158
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (1,310)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,246)
<DISCONTINUED> (64)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,310)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
