Registration No. 333-________
As filed with the Securities and Exchange Commission on November 8, 1999
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DIVA ENTERTAINMENT, INC.
(formerly known as QUASAR PROJECTS COMPANY)
(Name of small business issuer in its charter)
Delaware 8741 33-0601498
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
c/o Que Model Management
180 Varick Street
13th Floor
New York, New York 10014
(212) 807-6994
(Address and telephone number of principal executive offices and principal place
of business)
Peter C. Zachariou, Chief Executive Officer, 180 Varick Street, 13th Floor,
New York, New York 10014 (212) 807-6994
(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration statement of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF THE REGISTRATION FEE
Title of Each Class of Amount Proposed Maximum Proposed Maximum Amount of
Securities to be Registered to be registered(1) Offering Price per Share (2) Aggregate Offering Price Registration Fee
<S> <C> <C> <C> <C>
Common Stock, par
value $.001 per share 10,000 $2.00 $ 20,000 $ 5.56
Common Stock issuable
upon conversion of Series
A Convertible Preferred
Stock(3) 1,461,538 $2.00 2,923,076 812.62
Common Stock issuable
upon conversion of Series B
Redeemable Convertible
Preferred Stock(3) 2,307,692 $2.00 4,615,384 1,283.08
Totals...................... $7,558,460 $2,101.26
<FN>
(1) Rate at which shares of convertible preferred stock convert into shares of
common stock is based on current market price of Registrant's securities.
For purposes of calculating the registration fee, Registrant has
arbitrarily set a current market price of $2.00 per share. This market
price was arbitrarily determined and bears no relationship to what the
market price may or may not be on the date of conversion.
(2) Estimated solely for purposes of calculating the registration fee.
(3) Pursuant to Rule 416 this Registration Statement also covers such
additional shares as may become issuable as a result of the anti-dilution
provisions contained in the Statement of Designations for the Series A
Convertible Preferred Stock and Series B Redeemable Convertible Preferred
Stock.
</FN>
</TABLE>
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter in accordance with Section 8(a) of the Securities Act
of 1933 or until the registration statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 8, 1999
PROSPECTUS
3,779,230 SHARES OF COMMON STOCK
DIVA ENTERTAINMENT, INC.
The selling stockholders are offering for sale up to 3,779,230 shares
of common stock. These securities are issuable upon conversion of convertible
preferred shares which were issued as part of a merger effective April 1, 1999.
We are registering the re-sale of the shares of common stock pursuant to
commitments with these security holders. We will pay the expenses of registering
the re-sale of the shares.
The selling stockholders may sell their shares in public or private
transactions, at prevailing market prices or at privately negotiated prices. We
will not receive any proceeds from the sales of the shares. We are registering
the re-sale of the shares that are issuable upon conversion of preferred stock.
A registered broker-dealer who expects to make a market in our
securities intends to file a Form 211 with the U.S. Securities and Exchange
Commission to initiate coverage of our securities. It is expected that our
common stock will be quoted on the OTC Bulletin Board under the symbol
"________."
THESE SHARE HAVE NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAVE THESE ORGANIZATIONS
DETERMINED WHETHER THIS PROSPECTUS IS COMPLETE OR ACCURATE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE
____ OF THIS PROSPECTUS.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
- --------------------------------------------------------------------------------
The date of this Prospectus is _________ __, 1999
<PAGE>
TABLE OF CONTENTS
SUMMARY .......................................................... 1
RISK FACTORS....................................................... 4
FORWARD-LOOKING STATEMENTS......................................... 8
USE OF PROCEEDS.................................................... 8
MARKET FOR COMMON STOCK AND RELATED
STOCKHOLDER MATTERS................................................ 9
CAPITALIZATION..................................................... 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................ 11
BUSINESS........................................................... 14
MANAGEMENT......................................................... 18
PRINCIPAL STOCKHOLDERS............................................. 20
CERTAIN RELATIONSHIPS AND TRANSACTIONS............................. 21
SELLING STOCKHOLDERS............................................... 22
PLAN OF DISTRIBUTION............................................... 24
DESCRIPTION OF SECURITIES.......................................... 25
SHARES ELIGIBLE FOR FUTURE SALE.................................... 27
LEGAL OPINION...................................................... 27
EXPERTS............................................................ 28
WHERE YOU CAN FIND MORE INFORMATION................................ 28
You should rely only on the information contained in this Prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. We are offering to sell, and seeking offers
to buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this Prospectus is accurate only as of
the date of this Prospectus, regardless of the time of delivery of this
Prospectus or of any sale of our common stock.
<PAGE>
SUMMARY
THIS IS ONLY A SUMMARY AND DOES NOT CONTAIN ALL THE INFORMATION THAT
MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE MORE DETAILED INFORMATION CONTAINED
LATER IN THIS PROSPECTUS AND ALL OTHER INFORMATION, INCLUDING THE FINANCIAL
INFORMATION AND STATEMENTS WITH NOTES, INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS AS DISCUSSED IN THE "WHERE YOU CAN FIND MORE INFORMATION" SECTION OF
THIS PROSPECTUS.
ABOUT US
OUR BUSINESS
We were incorporated in Delaware in 1992 under the name Quasar
Projects Company. We were formed for the purpose of merging with or acquiring an
operating company with operating history and assets. Our primary activity was,
until recently, seeking companies with which to merge or to acquire.
On March 5, 1999, we, through our wholly-owned subsidiary, Diva
Acquisition Corp., merged with a Florida corporation known as Diva
Entertainment, Inc. ("Diva-Florida"). In connection with the merger, we changed
our name to Diva Entertainment, Inc. We currently operate model agencies in New
York and in Los Angeles. We anticipate opening model agencies in additional
areas in the future. Management is currently evaluating opportunities in Florida
and London. However, management is only at the evaluation stages. We have not
signed any letters of intent or agreements to open any additional agencies. We
cannot assure you that any additional agencies will be opened.
Our corporate offices are located at 180 Varick Street, 13th Floor, New
York, New York 10014, and our telephone number is (212) 807-6994.
THE MERGER
In connection with the merger on April 28, 1999, but effective April 1,
1999, we issued 4,225,000 shares of common stock to Diva-Florida's parent
corporation, JR Consulting Inc., and 221 shares of Series A Convertible
Preferred Stock to subscribers to a private offering conducted by Diva Florida
(of which 21 shares of Series A Convertible Preferred Stock were subsequently
redeemed). Also in connection with the merger, JR Consulting agreed to convert
$3,000,000 of debt, owed to it by Diva Florida, into 3,000 shares of Series B
Redeemable Convertible Stock at $1,000 per share. In addition, we entered into
an Option Agreement with JR Consulting, so that JR Consulting would maintain its
ownership percentage of our outstanding common stock at no less than 65%,
exclusive of any conversions of the Series B Redeemable Convertible Preferred
Stock into shares of common stock.
The merger was also contingent upon our selling 350 shares of Series A
Convertible Preferred Stock at $2,000 per share to private investors. As of the
effective
<PAGE>
date of the merger, 375 shares of Series A Convertible Stock were sold to
investors, resulting in approximately $700,000 of net proceeds to us.
ABOUT THE OFFERING
Common Stock Outstanding..............................5,498,800 shares(1)
Common Stock Offered by the Selling Stockholders......3,779,230 shares(2)
Use of Proceeds.......................................We will not receive any
proceeds from the sale of
the shares of common stock
by the selling
stockholders.
Risk Factors..........................................The securities offered
hereby involve a high
degree of risk. See "Risk
Factors."
Proposed OTC Bulletin
Board Symbol........................................
- --------
(1) Does not include shares of common stock issuable upon conversion of
outstanding shares of Series A Convertible Preferred Stock and Series B
Redeemable Convertible Preferred Stock and upon exercise of outstanding options
and warrants to purchase shares of common stock.
(2) Includes shares issuable upon conversion of our outstanding shares of Series
A and Series B Preferred Stock.
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<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following is a summary of our consolidated financial statements,
which are included elsewhere in this Prospectus. This information should be read
in conjunction with the consolidated financial statements, related notes and
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------- ---------
1997 1998 1998 1999
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Total Revenue $1,174,108 $1,446,121 $1,016,000 $1,281,000
Operating Expenses 1,441,238 1,874,120 1,224,000 1,628,000
Income (Loss) from Operations (267,130) (407,999) (228,000) (347,000)
Other Income (Loss) 1,674 296,688 287,000 (56,000)
Net Income (Loss) (265,456) (111,311) 59,000 (403,000)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1999
----------
<S> <C>
BALANCE SHEET DATA:
Working Capital $ (473,000)
Current Assets 1,245,000
Total Assets 2,284,000
Current Liabilities 1,718,000
Other Liabilities 4,149,000
Stockholders' Deficiency (3,583,000)
</TABLE>
3
<PAGE>
RISK FACTORS
THE SHARES OFFERED ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING MATTERS, AS WELL AS THE OTHER
INFORMATION IN THIS PROSPECTUS, BEFORE INVESTING.
WE HAVE A HISTORY OF LOSSES.
Our loss from operations was $347,000 for the nine months ended March
31, 1999 as compared to loss from operations of $228,000 for the year ended June
30, 1998. This increase was attributable to not having other income from the
sale of the studio as the company did for the year ended June 30, 1998.
Management expects that we will have a loss for the fiscal year ended June 30,
1999. Moreover, we cannot assure you that we will have a profit in fiscal 2000
or thereafter.
WE ARE HIGHLY DEPENDENT ON PETER ZACHARIOU.
We are highly dependent upon the continued service of Peter Zachariou,
our President and Chairman of the Board. We do not have an employment agreement
with Mr. Zachariou. The loss of the services of Mr. Zachariou could hurt our
business. We have no key-man life insurance on any key members of staff. See
"Management."
WE FACE INTENSE COMPETITION AND MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.
Competition is intense in our business. Many of our competitors and
potential competitors have substantially greater financial and marketing
resources, larger customer bases, longer operating histories, greater name
recognition and more established relationships than we do. We cannot assure you
that we will be able to compete successfully against current or future
competitors or that the competitive pressures we will face will not harm our
business. See "Business--Competition."
WE MAY REQUIRE ADDITIONAL FINANCING AND WE MIGHT NOT BE ABLE TO GET IT.
Our business is capital intensive. We estimate that the proceeds from
the collection of the subscriptions receivable for the Series A Convertible
Preferred Stock, $750,000, should be sufficient for working capital for a period
of 12 months following the completion of this offering. However, our estimates
may be incorrect. As we expand our business, more capital is required. As a
result, we may be required in the future to seek additional funding through
equity or debt financing to continue to fund growth and expansion. We cannot
assure you that funding will be available on acceptable terms, if at all. If we
cannot raise funds, our business could be materially harmed.
THE PRINCIPAL STOCKHOLDER CONTROLS AND WILL CONTINUE TO CONTROL US.
As of the date of this Prospectus, JR Consulting, Inc. owns 76.8% of
our common stock. JR Consulting also has an option allowing it to maintain at
least 65% ownership of
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<PAGE>
the company. As a result, JR Consulting, Inc. will be able to exercise
significant influence and control over decisions that may effect our
stockholders. JR Consulting, Inc. shall be able to authorize certain
transactions, including mergers, acquisitions, consolidations and sales of
substantially all of our assets, without the consent of any of our other
stockholders, subject to applicable laws.
WE MAY NOT BE ABLE TO MANAGE OUR OWN GROWTH EFFICIENTLY.
We may not be equipped to successfully manage this or any other future
periods of rapid growth or expansion, which could be expected to place a
significant strain on our managerial, operating, financial and other resources.
Our operating results will be adversely affected if net sales do not increase
sufficiently to compensate for the increase in operating expenses caused by this
expansion.
THERE MAY BE FLUCTUATIONS IN QUARTERLY OPERATING RESULTS.
Our quarterly operating results may vary significantly in the future
as a result of many factors, many of which are outside our control. Factors that
may affect our quarterly operating results include:
- - the rate at which clients use our models;
- - the time it takes our clients to pay us;
- - price competition;
- - the amount and timing of capital expenditures;
- - other costs relating to the expansion of our business;
- - economic conditions specific to the modeling industry; and
- - general economic conditions.
Any one of the foregoing factors or combination of them may hurt our business.
PENNY STOCK REGULATIONS MAY AFFECT THE MARKET FOR OUR SECURITIES.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosures relating to the market for penny stocks in connection
with trades in any stock defined as penny stock. The SEC Regulations generally
define a penny stock to be an equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. Unless an exception is
available, the regulations require delivery, prior to any transaction involving
a penny stock, of a disclosure schedule explaining the penny stock market and
the risks associated therewith.
In addition, if the common stock is not quoted on Nasdaq, or if the
company does not meet the other exceptions to the penny stock regulations,
trading in the common stock would be covered by Rule 15g-9 promulgated under the
Securities Exchange Act of 1934 for non-Nasdaq and non-national securities
exchange listed securities. Under such rule, broker-dealers who recommend such
securities to persons other than established customers and accredited investors
must make a special written suitability determination for the
5
<PAGE>
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. Securities are also exempt from this rule if the market price is at
least $5.00 per share.
For so long as our common stock is subject to the rules on penny
stock, the market liquidity for the common stock, is adversely affected. The
regulations on penny stocks limit the ability of broker-dealers to sell the
common stock and thus the ability of purchasers of the common stock to sell
their securities in the secondary market.
ACTIVE PUBLIC MARKET MAY NOT DEVELOP FOR OUR SECURITIES.
Quotation for our common stock has not yet begun. In late September
1999, a broker-dealer filed a Form 211 with the U.S. Securities and Exchange
Commission to initiate quotation of our common stock on the OTC Bulletin Board.
We cannot assure you that a public market for our common stock will develop or
be sustained after this offering or in the future.
SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY EFFECT THE MARKET FOR OUR
SECURITIES.
Our stock price may be hurt by future sales of our shares or the
perception that such sales may occur. As of the date of this Prospectus, all of
the shares of common stock held by existing stockholders constitute "restricted
shares" as defined in Rule 144 of the Securities Act. These shares may only be
sold if they are registered under the Securities Act or sold under Rule 144 or
another exemption from registration under the Securities Act. Sales under Rule
144 are subject to the satisfaction of certain holding periods, volume
limitations, manner of sale requirements, and the availability of current public
information about us.
Substantially all of our restricted shares of common stock are either
eligible for sale pursuant to Rule 144 or have been registered under the
Securities Act for resale by the holders, including the common stock covered by
this Prospectus. This will permit the sale of registered shares of common stock
in the open market or in privately negotiated transactions without compliance
with the requirements of Rule 144. We are unable to estimate the amount, timing
or nature of future sales of outstanding common stock. Sales of substantial
amounts of the common stock in the public market may hurt the stock's market
price.
OUTSTANDING CONVERTIBLE PREFERRED STOCK MIGHT EFFECT THE MARKET FOR OUR COMMON
STOCK.
As of the date of this Prospectus, we have outstanding preferred stock
convertible into an aggregate of approximately 3,769,230 shares of common stock
(based on a current market price of $2.00 per share which was arbitrarily
determined by management for purposes of this filing and calculation). As long
as these shares or convertible preferred stock remain outstanding, the terms
under which we could obtain additional capital may be adversely affected.
Moreover, the holders of the convertible preferred stock may be expected to
convert them at a time when we could, in all likelihood, be able
6
<PAGE>
to obtain any needed capital by a new offering of our securities on terms more
favorable than those provided by these securities.
THERE ARE RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS.
This Prospectus contains certain forward-looking statements regarding
the plans and objectives of management for future operations. The
forward-looking statements herein are based on current expectations that involve
a number of risks and uncertainties. Such forward-looking statements are based
on certain assumptions:
- - that we will retain and attract clients;
- - that we will retain our talent and attract new talent;
- - that there will be no material adverse competitive change in conditions
in the our business;
- - that our forecasts accurately anticipate market demand; and
- - that there will be no material adverse change in our operations or
business or in governmental regulations affecting the Company.
These assumptions are based on judgments with respect to, among other
things, future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Accordingly, although we believe that the
assumptions underlying the forward-looking statements are reasonable, any such
assumption could prove to be inaccurate and therefore we cannot assure you that
we will achieve our objectives. In addition, as disclosed elsewhere in the "Risk
Factors" section of this Prospectus, there are a number of other risks inherent
in our business and operations which could cause our operating results to vary
markedly and adversely from prior results or the results contemplated by the
forward-looking statements. The decisions of our management, including
budgeting, are subjective in many respects. When we make periodic revisions to
reflect actual conditions and business developments, we may have to alter our
marketing, capital investment and other expenditures, which may in turn also
hurt our financial results. Because of the significant uncertainties inherent in
the forward-looking information included in this Prospectus, you should not
consider this information, which we have included, as a representation by us or
by any other person that our objectives or plans will be achieved. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
YEAR 2000 ISSUES MAY IMPACT OUR BUSINESS.
The Year 2000 issue is the result of computer programs and other
business systems being written using two digits rather than four to represent
the year. Many of our time-sensitive application and business systems and those
of our customers may recognize a date using "00" as the year 1900 rather than
the year 2000, which could result in system failure or disruption of operations.
The Year 2000 problem may impact us. We have assessed our Year 2000
exposure and have upgraded all of our software to Microsoft Year 2000 compliant
software. We
7
<PAGE>
believe that we will satisfactorily resolve all significant Year 2000 problems
and that related costs, if any, will not be material. Estimates of Year 2000
related costs are based on numerous assumptions, including the ability to
correct all relevant applications.
FORWARD-LOOKING STATEMENTS
Certain important factors may affect our actual results and could cause
those results to differ materially from any forward-looking statements made in
this Prospectus or that are otherwise made by us or on our behalf.
"Forward-looking statements" are not based on historical facts and are typically
phrased using words such as "may," "will," "expect," "believe," "anticipate,"
"intend," "could," "estimate," or "continue" and similar expressions or
variations.
Differences in actual results may be caused by factors such as those
discussed in the "Risk Factors" below as well as those discussed elsewhere in
this Prospectus and in our filings with the SEC.
USE OF PROCEEDS
We will receive no proceeds from the sale of the shares being offered
by the selling shareholders under this Prospectus. We estimate that we will
spend $25,000 in registering the shares under this Prospectus.
8
<PAGE>
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
DETERMINATION OF OFFERING PRICE
Management intends to list our common stock under the symbol "_____" on
the OTC Bulletin Board. As of this date, our common stock is not trading or
listed on any exchange. Accordingly, the sale price of our common stock
(determined for purposes of calculating the registration fee and number of
shares issuable upon conversion of convertible preferred stock), was determined
arbitrarily by management. This offering bears no relation to our assets,
revenues or other matters.
HOLDERS
As of August 25, 1999, there were approximately 284 holders or record
of common stock. We believe that the common stock is held by approximately 284
beneficial holders.
DIVIDEND POLICY
We have not paid any dividends on our common stock. We currently
intend to retain any earnings for use in our business and, therefore, do not
anticipate paying cash dividends in the foreseeable future.
9
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999,
as adjusted to give effect to the merger which occurred on April 28, 1999 but
effective April 1, 1999. This table should be read in conjunction with out
consolidated financial statements and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
AS
ACTUAL ADJUSTED(1)
------ -----------
(in thousands)
<S> <C> <C>
Current portion of long-term debt(1) $ - $ -
Long-term debt 4,149 1,149
Stockholders' Equity:
Preferred Stock, $.001 par value per share;
1,000,000 shares authorized
- Series A Convertible Preferred Stock,
575 shares issued and outstanding - 1,150
- Series B Redeemable Convertible
Preferred Stock, 3,000 shares issued
and outstanding - 3,000
Common Stock of Diva, $.01 par value;
10,000,000 shares authorized,
4,500,000 shares issued and outstanding 45 -
Common Stock subscribed, $.01 par value per share,
221,000 shares issued and outstanding 2 -
Common Stock, $.001 par value per share;
20,000,000 shares authorized; 5,498,000
shares issued and outstanding - 5
Additional Paid in Capital 451 51
Retained Earnings (4,038) (4,038)
Unrealized loss on marketable securities (43) (43)
---------- ----------
Total Stockholders' Equity (3,583) 125
---------- ----------
Total Capitalization $ 566 $ 1,274
========== ==========
<FN>
- ----------
(1) As adjusted to reflect (i) share exchange and reverse merger with Quasar
Projects Company, (ii) conversion of $3,000,000 in debt owed to JRConsulting,
Inc. into 3,000 shares of Series B Redeemable Preferred Stock, and (iii) private
placement offering of 375 shares of Series A Convertible Preferred Stock.
</FN>
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with our consolidated financial statements and the notes thereto.
Except for the historical information contained herein, the matters
discussed below are forward looking statements involving risks and uncertainties
which may cause actual results to materially differ. Those risks and
uncertainties include but are not limited to economic, competitive, industry and
market factors affecting our operations, markets, products, prices and other
factors discussed herein.
RESULTS OF OPERATIONS
Our revenues principally consist of net management fees. Our clients
pay for model time. We deduct a percentage management fee and pay the balance of
the fee to the individual model.
NINE MONTHS ENDED MARCH 31, 1999 AS COMPARED TO NINE MONTHS ENDED MARCH
31, 1998
Our revenues for the nine months ended March 31, 1999 (the "1999
Period") were $1,281,000 compared to $1,016,000, for the nine months ended March
31, 1998 (the "1998 Period"). The increase was primarily due to the addition
of the New York agency.
Selling, general and administrative expenses in the 1999 Period were
$1,592,000 as compared to $1,208,000 in the 1998 Period. The increase was also
due to the opening of the New York office.
Net operating loss for the 1999 Period was $347,000 as compared to a
net operating loss of $228,000 for the 1998 Period. The increase was
attributable to the development of the New York office.
In the 1999 Period, we had other expenses of $56,000 as compared to
other income of $287,000 in the 1998 Period. The other income in the 1998 Period
primarily results from the sale of a studio.
Our loss from operations was $347,000 for the nine months ended March
31, 1999 as compared to loss from operations of $228,000 for the year ended June
30, 1998. This increase was attributable to not having other income from the
sale of the studio as the company did for the year ended June 30, 1998.
FISCAL YEAR ENDED JUNE 30, 1998 AS COMPARED TO FISCAL YEAR ENDED JUNE
30, 1997
Our revenues in the year ended June 30, 1998 ("Fiscal 1998") were
$1,466,121, compared to $1,741,108 for the year ended June 30, 1997 ("Fiscal
1997"). The decrease
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<PAGE>
was due principally to the addition of the New York agency in January 1998, but
also to instability in Fiscal 1998 among Diva's booking agents, which
experienced a 100% turnover in Fiscal 1998. Revenues in Fiscal 1998 included
$217,238 in other revenues, which consisted of revenues from the sale of a
photography studio.
Selling, general and administrative expenses in Fiscal 1998 were
$1,874,120, compared to $1,441,238 in Fiscal 1997. The increase was due
primarily to the opening of the New York office.
Net operating loss was $407,999 in Fiscal 1998, compared to $267,130 in
Fiscal 1997. The increase was primarily attributable to startup costs of the New
York agency.
Other income was $296,688 in Fiscal 1998 compared to $1,674 in Fiscal
1997. Other income in Fiscal 1998 included $81,245 from trading in marketable
securities and $217,238 from the sale of a studio.
We had a net loss of $111,311 in Fiscal 1998 as compared to a net loss
of $265,456 in Fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1999, we had a working capital deficit of $473,000. A
large part of this deficit is attributable to a litigation reserve of $413,151.
Our business is capital intensive. We must pay our modeling talent soon after
services are rendered. While our accounts receivable are generally due in 30
days, they are usually collected within 60 to 120 days.
Our cash needs over the next 12 months are expected to be generated
from operations. However, we anticipate opening model agencies in additional
areas in the future. Assuming we do not open additional model agencies in the
next 12 months, our capital expenditures are anticipated to be $15,000. Such
expenditures will be primarily for office equipment. We intend to finance these
capital expenditures through working capital.
In February through April 1999, we conducted a private offering of 750
shares of Series A Convertible Preferred Stock. We received $750,000 of the
offering proceeds in cash and a subscription for the other $750,000, of which is
payable when we file this Registration Statement. We anticipate receiving the
additional $750,000 within the next several days. These proceeds will be used to
finance capital expenditures and applied to working capital. Except as
described, we have no commitments for additional funding and no assurance can be
given that we will obtain additional funding.
YEAR 2000 READINESS
The Year 2000 issue refers to a condition in computer software where a
two-digit field rather than a four-digit field are used to distinguish a
calendar year. Unless
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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 our
business, could result in disruption of our operations and could subject us to
potentially significant legal liabilities.
We have conducted an assessment of the Year 2000 issue and the
potential effect it will have on our business and us. We have also prepared a
formal plan for dealing with the Year 2000 issue. We are in the process of
updating much of our existing software for Year 2000 compliance by modifying
existing internally developed software. We intend to hire outside consultants
and acquire new and upgraded third party software packages to replace those
currently used by us which cannot be modified.
While we believe we have made substantial progress in resolving any
Year 2000 issues, sufficient testing to date has not been completed to fully
validate readiness. Additional testing is planned during 1999 to reasonably
ensure Year 2000 readiness. We are planning to complete all necessary Year 2000
upgrades for our systems in 1999.
The possibility exists that we could inadvertently fail to correct a
Year 2000 problem. We believe 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, we believe we will
be able to conduct our business, possibly at a reduced volume, using our 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 us. While we have not
already done so, we intend to survey our major customers and suppliers regarding
their progress in resolving Year 2000 issues. It is contemplated that this
survey will take place during the third and fourth quarter of 1990.
To date, Year 2000 readiness has cost us an estimated $39,000
(including upgrades to existing systems) and will cost approximately $65,000 in
the aggregate to complete.
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BUSINESS
BACKGROUND
We are in the business of representing talent including professional
fashion models, commercial actors and theatrical actors. Prima Eastwest Model
Management, Inc., a wholly-owned subsidiary of Diva, has operated our Los
Angeles agency since 1986. In January 1998, we opened a second agency in New
York through the formation of another subsidiary, Que Management, Inc. We
anticipate opening model agencies in additional areas in the future. Management
is currently evaluating opportunities in Florida and London. However, management
is only at the evaluation stages. We have not signed any letters of intent or
agreements to open any additional agencies. We cannot assure you that any
additional agencies will be opened.
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. Our over 500 clients include
magazine publishing houses, designers, national retailers and catalogs including
Elle Magazine, Talbot's, Nordstroms, Banana Republic and Macy's.
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. Two experienced managers in the field of print manage
Que.
The Print division of Prima and Que each operates in the competitive
modeling agency field and is subdivided into male and female subdivisions.
Management believes that the Print division of Prima is one of the leading
agencies in this field in Los Angeles. Management also believes that, in the
short time since Que began operations, it has become one of the leading print
model agencies in New York.
Prima also provides hair, make up and styling services for models,
actors, actresses and celebrities through its Profile division. This division
not only offers an important service to the Print division, but it also provides
Prima with an entry into the celebrity/entertainment field. It can thus play a
key role in the promotion of young models in the entertainment industry.
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Prima intends to commence operation of a Talent and Commercial
division, although there is no assurance that this will occur. This division
will seek to introduce models who may have a career in the print modeling
industry into both the audio and visual entertainment industry and conversely to
expand the exposure and portfolio of artists currently in audio and visual
entertainment in the print modeling industry.
MARKETS
The traditional markets for Prima 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.
MARKETING STRATEGY
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's 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 has also started a
hair and makeup division to try and compete in this attractive market.
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.
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<PAGE>
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,
there can be no assurance that we 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 in January, 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 travelling 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.
REGULATION
Prima holds a Talent License issued by the State of California. This
license enables it to operate as a talent agency for all purposes other than
film and similar enterprises. Prima has a Screen Actors Guild license in respect
of those of its talent who may be used in the film or affiliated industries
Que does not hold any license in New York.
EMPLOYEES
At September 30, 1999, we 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.
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SEASONAL FLUCTUATIONS
The market demand for the talent we represent is controlled by the
requirements of the client base. We service a variety of clients. It has always
been our objective to take anti-cyclical measures which might affect a
particular group of clients. Without moving into other industries, but by
ensuring that the client base covers a wide range of industries, we have found
this to be the most practical way of achieving this objective. This does not
guarantee that we do not experience fluctuations in our level of activity, but
it does mean that most of the time there is no discernable cycle during the
year. An exception to this is the midsummer period when a large proportion of
the clients reduce their level of activity due to a peak in vacations being
taken by employees.
LEGAL PROCEEDINGS
Prima is a party to litigation which 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 is suing all of the defendants for approximately $413,151 based upon a
demand loan that LISB made to Godt, Stein, Dash and Prima Management and 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. If Prima is found to be liable to LISB as the guarantor of the note, it
will seek contribution from the original obligors. Prima is vigorously defending
this litigation.
J R Consulting, Inc. and Prima are parties to another litigation which
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. and that was
merged into Prima on March 1, 1996 in order to consummate J R Consulting, Inc.'s
acquisition of Prima. Godt alleges that Prima promised that it would repay a
demand loan that Godt, together with Jeffrey Dash and Edward T. Stein, received
from LISB. Godt claims that 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.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our Board of Directors serve until the next annual meeting of
stockholders, or until their successors have been elected. The officers are
elected by the Board of Directors. The following are the names, ages and
positions of our directors and executive officers:
NAME POSITION AGE
---- -------- ---
Peter Zachariou President and Chairman of the Board 39
David Lean Chief Financial Officer and Director 53
Maxo Benalal Vice President and Director 38
Peter Zachariou has been President and Chairman of the Board of Diva
since April 1999. Mr. 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. 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.
David Lean has been a Director of Diva since April 1999. Mr. Lean has
been a Director of J R Consulting, Inc. since August 11, 1995, and was Treasurer
of J Consulting, Inc. from April 11, 1995, to May 9, 1997. He has an Honours
Degree in Economics from the University of Adelaide in South Australia (1969)
and is a Chartered Accountant (1973). Since qualifying as a chartered accountant
he has been employed mainly in the base metal mining and smelting industry in
Australia, Europe and North America. He has worked in the financial side of the
mining industry but has primarily been involved with the commercial aspects of
the business. Since 1993 he has been self-employed trading in mineral products.
Maxo Benalal has been a Director of Diva since April 1999. He is an
attorney member of the Madrid Bar and the European Union's Bar. Since 1993, he
has been a Senior Partner of DeDiego, Benalal & Associados of Madrid, Spain; the
Senior Resident Partner of DeDiego, G. Carreira & Benalal in Brussels, Belgium
and an Associated Partner of DeDiego, Benalal & Associados - Raffin,
Raffin-Courbe, Gofard & Associes in Paris, France.
Our directors hold office until the next annual meeting of stockholders
and until their successors have been duly elected and qualified or their earlier
resignation, removal from office or death. Our officers are elected annually by
the Board of Directors and serve at the discretion of the Board.
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There are no family relationships among our directors and executive
officers.
DIRECTOR COMPENSATION
We do not currently pay any compensation to our directors although we
do reimburse directors for actual expenses incurred in connection with attending
in person meetings of the Board of Directors. We may, in the future, compensate
our directors.
EXECUTIVE COMPENSATION
For the fiscal years ended June 30, 1998 and 1997, we did not pay any
compensation to our executive officers although we did reimburse executive
officers for actual expenses incurred in connection with the performance of
their duties. We may, in the future, compensate our directors.
EMPLOYMENT AGREEMENTS
We currently do not have employment agreements with any of our
executive officers.
OPTION GRANTS IN LAST FISCAL YEAR AND HELD AT FISCAL 1998
For the fiscal years ended June 30, 1998 and 1997, we did not grant any
options to purchase our securities and no outstanding stock options were held at
the end of the fiscal year ended June 30, 1998.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information, as of the date of this
Prospectus relating to the beneficial ownership of Company Common Stock, by
those persons beneficially holding more than 5% of the Company's capital stock,
by each of the Company's directors and officers, and by all of the Company's
directors and officers as a group.
NAME NUMBER OF SHARES PERCENT
J R Consulting, Inc.(1) 4,225,000 76.8%
180 Varick Street, 13th Floor
New York, New York 10014
Peter Zachariou(1)(2) 4,225,000 76.8%
180 Varick Street, 13th Floor
New York, New York 10014
- ----------------
(1) Does not include the shares of common stock issuable upon conversion of
the Series B Redeemable Convertible Preferred Stock held by JR
Consulting, Inc. or the effect of the Option Agreement between JR
Consulting, Inc. and Diva Entertainment, Inc. See "Certain
Transactions".
(2) Represents the shares held by J R Consulting, Inc. Peter
Zachariou, through Havilland Ltd., is the principal shareholder
of J R Consulting, Inc.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
On December 30, 1998, we entered into an agreement with Diva
Entertainment, Inc., a Florida corporation ("Diva-Florida"), JR Consulting,
Inc., a Nevada corporation and holder of 95.3% of Diva-Florida's outstanding
securities ("JRCI"), and Diva Acquisition Corp., one of our wholly owned
subsidiaries ("DAC"). Pursuant to this Agreement, Diva-Florida, which owns and
operates two model agencies, became a wholly owned subsidiary of ours. Pursuant
to the merger and in exchange for the shares of Diva-Florida, (i) each
outstanding share of Diva-Florida common stock converted into 0.93888888 of a
share of our common stock and (ii) outstanding subscription rights to purchase
1,000 shares of Diva-Florida common stock converted into one share of Series A
Convertible Preferred Stock. As a result, we issued 4,225,000 shares of common
stock and 221 shares of Series A Convertible Preferred Stock to the security
holders of Diva-Florida (of which 21 shares of Series A Convertible Preferred
Stock were subsequently redeemed).
In connection with this merger, JRCI converted $3,000,000 in debt owed
to it by Diva-Florida and/or its subsidiaries into 3,000 shares of Series B
Convertible Preferred Stock. In addition, we granted to JRCI an option to
purchase such number of shares of common stock as necessary to enable JRCI to
maintain at least 65% of the issued and outstanding shares of our common stock,
plus an additional 1% multiplied by a fraction, the numerator of which is
$3,000,000 minus the dollar amount raised in private placements of our Series A
Convertible Preferred Stock and the denominator of which is 85,714. The option
is exercisable at a price of $.001 per share and continues until such time as
all of the shares of Series A Convertible Preferred Stock have been converted.
APPROVAL OF AFFILIATED TRANSACTIONS
All transactions between us and our directors, executive officers and
principal stockholders will be on terms no less favorable than could be obtained
from unaffiliated third parties and have been and will be approved by a majority
of our directors.
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SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the common stock by each selling stockholder as of the
date of this Prospectus, based on information made available to us by the
selling stockholder:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
COMMON STOCK PRIOR OWNERSHIP OF COMPANY
TO OFFERING STOCK AFTER OFFERING
NAME OF SELLING ------------------------ NUMBER OF SHARES --------------------
STOCKHOLDER SHARES(1) PERCENTAGE(1) TO BE REGISTERED SHARES(2) PERCENTAGE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Richard S. Beatty 7,692 (3) * 7,692 0 0
Brad Blumenthal 19,231 (3) * 19,231 0 0
Barry Seidman 192,308 (3) 3.4% 192,308 0 0
Dale N. Steen 23,077 (3) * 23,077 0 0
Steven Louth 19,231 (3) * 19,231 0 0
Alex Halpern 23,077 (3) * 23,077 0 0
Frederick Lenz 23,077 (3) * 23,077 0 0
Pegasus Investment
Holdings Ltd. 38,462 (3) * 38,462 0 0
Tabacalera Ltd. 653,846 (3) 10.6 653,846 0 0
Chadel Ltd. 153,846 (3) 2.7 153,846 0 0
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JR Consulting, Inc. 2,307,692 (4) 29.6 2,307,692 0 0
Congregation Beth
Mordechai 102,615 (3) 1.8 102,615 0 0
John D'Avanzo 25,615 (3) * 25,615 0 0
Gladys D'Avanzo 25,615 (3) * 25,615 0 0
Jason Fok 76,923 (3) 1.4 76,923 0 0
Allan Carter 76,923 (3) 1.4 76,923 0 0
Telluride Holdings L.C. 10,000 * 10,000 0 0
<FN>
- ----------
* Less than 1%
(1) Except as otherwise indicated, the persons named in this table have sole
voting and investment power with respect to all shares of common stock listed.
Includes shares of common stock that such persons have the right to acquire a
beneficial interest in within 60 days from the date of this Prospectus,
including shares issuable upon the exercise of warrants to purchase our common
stock.
(2) Assumes that all shares of common stock registered for the account of the
selling stockholder are sold.
(3) Represents shares of common stock issuable upon conversion of Series A
Convertible Preferred Stock. The conversion price is based on the market price
(as defined in the Certificate of Designations) of Diva's common stock.
Currently, there is no market price for Diva's common stock. Accordingly, for
purposes of calculating the number of shares issuable upon conversion of the
Preferred Stock, management has arbitrarily set a market price of $2.00 per
share.
(4) Represents shares of common stock issuable upon conversion of Series B
Redeemable Convertible Preferred Stock. The conversion price is based on the
Market Price (as defined in the Certificate of Designations) of Diva's common
stock. Currently, there is no Market Price for Diva's common stock. As such, for
purposes of calculating the number of shares issuable upon conversion of the
Preferred Stock, management has arbitrarily set a market price of $2.00 per
share.
</FN>
</TABLE>
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PLAN OF DISTRIBUTION
The selling stockholders may sell their shares of common stock in
various ways and at various prices. Some of the methods by which the selling
stockholders may sell their shares include:
- - Ordinary broker transactions and transactions in which the broker
solicits purchasers;
- - Privately negotiated transactions;
- - Sales under Rule 144 rather than by using this Prospectus;
- - A combination of any such methods of sale; and
- - Any other legally permitted method.
The applicable sales price may be affected by the type of transaction.
The selling stockholders may also pledge their shares pursuant to the
margin provisions of their customer agreements with their brokers. If there is a
default by the selling stockholders, the brokers may offer and sell the pledged
shares.
Brokers or dealers may receive commissions or discounts, if any, that
will be paid by the selling stockholders in connection with the sales of the
shares.
We cannot estimate at the present time the amount of commissions or
discounts, if any, that will be paid by the selling stockholders in connection
with the sales of the shares.
The selling stockholders and any broker-dealers or agents that
participate with the selling stockholders in sales of the shares may be deemed
to be "underwriters" within the meaning of the Securities Act in connection with
such sales. In that event, any commissions received by such broker-dealers or
agents any profit on the resale of the shares purchased by them may be deemed to
be underwriting commissions or discounts under the Securities Act.
Under the securities laws of certain states, the shares may be sold in
those states only through registered or licensed broker-dealers or pursuant to
available exemptions from such requirements. In addition, in certain states, the
shares may not be sold therein unless the shares have been registered or
qualified for sale in such state or an exemption from such requirement is
available and complied with.
We have agreed to pay all fees and expenses incident to the registration
of the shares, including certain fees and disbursements of counsel to the
selling stockholders.
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<PAGE>
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 20,000,000 shares of common
stock, $.001 par value per share, and 1,000,000 shares of preferred stock, $.001
par value per share. As of the date of this Prospectus, 5,498,000 shares of
common stock and 3,596 shares of preferred stock were outstanding.
COMMON STOCK
Each share of common stock entitles the holder to one vote on all
matters submitted to a vote of the stockholders and to a pro rata share of
dividends, if any, declared by the Board of Directors from legally available
funds. Holders of our common stock have no cumulative voting rights. Upon our
liquidation, dissolution or winding up, each stockholder is entitled to share
ratably in any assets available for distribution after payment of all debts.
Stockholders have no preemptive, conversion or other subscription rights
and there are no redemption rights or sinking fund provisions applicable to the
common stock . All outstanding shares of common stock are, and the shares of
common stock issuable upon conversion of the Series A Convertible Preferred
Stock will be, when issued and delivered, fully paid and non-assessable.
PREFERRED STOCK
Our Articles of Incorporation authorize the issuance of 1,000,000 shares
of preferred stock, par value $.001 per share. Of such shares, 1,721 shares have
been designated Series A Convertible Preferred Stock, of which 575 shares of
Series A Preferred Stock are outstanding. In addition, 3,000 shares have been
designated Series B Redeemable Convertible Preferred Stock, all of which are
outstanding.
The Series A Convertible Preferred Stock is convertible, at the option
of the holder, and shall be mandatorily converted on the first anniversary of
its date of issuance, into a number of shares of common stock equal to $2,000
divided by sixty-five percent (65%) of the average "market price" of the common
stock over the five trading days prior to conversion, subject to adjustment.
Market price for any date shall be the average bid price of the common stock on
such date, as reported by the Nasdaq Stock Market, or the average bid price in
the over-the-counter market if other than Nasdaq. The holders of Series A
Convertible Preferred Stock have a liquidation preference equal to $2,000 per
share. Dividends on the Series A Convertible Preferred Stock are payable at the
rate of $60.00 per share per annum on each anniversary date of issuance and on
conversion pro-rated based on a 360 day year in either cash or, at the option of
the company, common stock valued at the conversion rate. The holders of Series A
Convertible Preferred Stock do not have voting rights.
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The Series B Redeemable Convertible Preferred Stock is convertible, at
the option of the holder, and shall be mandatorily converted on the tenth
anniversary of its dates of issuance, into a number of shares of Common Stock
equal to $1,000 divided by sixty-five percent (65%) of the average " market
price" of the common stock over the five trading days prior to conversion,
subject to adjustment. Market price is defined the same as for the Series A
Convertible Preferred Stock. We may redeem all or part of the Series B
Redeemable Convertible Preferred Stock at any time and from time to time at a
redemption price of $1,000 per share, plus any accrued but unpaid dividends. The
holders of Series B Redeemable Convertible Preferred Stock have a liquidation
preference equal to $1,000 per share. Dividends on the Series B Redeemable
Convertible Preferred Stock are payable at the rate of $30.00 per share per
annum on each anniversary date of issuance and on conversion pro-rata based on a
360-day year in either cash, or, at the option of the company, common stock
valued at the conversion rate. The holders of Series B Redeemable Convertible
Preferred Stock do not have voting rights. The Series B Redeemable Convertible
Preferred Stock ranks on a parity with the Series A Convertible Preferred Stock
with respect to liquidation rights and dividends.
ANTI-TAKEOVER PROVISIONS
Our Board of Directors has the authority to issue up to 1,000,000 shares
of preferred stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
stockholders. The rights of holders of common stock will be subject to, and may
be adversely affected by , the rights of holders of any preferred stock that may
be issued in the future. Although we have no present intention to issue any
additional shares of preferred stock, any issuance of preferred stock, while
potentially providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of our outstanding voting
stock. Additionally, we are subject to the anti-takeover provisions of Section
203 of the Delaware General Corporation Law, which prohibits us from engaging in
a "business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
Section 203 could have the effect of delaying or preventing a change of control.
TRANSFER AGENT
The transfer agent for the common stock is TranSecurities International,
2510 North Pines, Suite 202, Spokane, Washington 99206-7624.
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SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, we have 5,498,800 shares of common
stock issued and outstanding. Substantially, all of these shares of common stock
are either eligible for sale pursuant to Rule 144 or have been registered under
the Securities Act for resale by the holders, including the common stock covered
by this Prospectus. This will permit the sale of registered shares of common
stock in the open market or in privately negotiated transactions without
compliance with the requirements of Rule 144. We are unable to estimate the
amount, timing or nature of future sales of outstanding common stock. Sales of
substantial amounts of the common stock in the public market may hurt the
stock's market price.
In general, under Rule 144, if a period of at least one year has elapsed
since the later of the date the "restricted securities" were acquired from us or
the date they were acquired from an Affiliate (as that term is defined in Rule
144), then the holder of such restricted securities is entitled to sell a number
of shares of common stock equal to 1% of the issued and outstanding shares of
common stock (approximately 54,988 shares immediately after this offering) or
the average weekly reported volume of trading of the common stock on the Nasdaq
SmallCap Market during the four calendar weeks preceding such sale. The holder
may only sell such shares through unsolicited brokers' transactions or directly
to market makers. Sales under Rule 144 are also subject to certain requirements
pertaining to the manner of such sales, notices of such sales and the
availability of current public information about us. Affiliates may sell shares
not constituting restricted shares in accordance with the foregoing volume
limitations and other requirements but without regard to one-year holding
period.
Under Rule 144(k), if a period of at least two years has elapsed between
the later of the date restricted shares were acquired from us or the date they
were acquired from an Affiliate, as applicable, a holder of such restricted
shares who is not an Affiliate at the time of the sale and has not been an
Affiliate for at least three months prior to the sale would be entitled to sell
the shares immediately without regard to the volume limitations and other
conditions described below.
We cannot make any predictions as to the effect, if any, that sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of significant amounts of the
common stock in the public market, or the perception that such sales may occur,
could adversely affect prevailing market prices.
LEGAL OPINION
Hand & Hand, 24351 Pasto Road, Suite B, Dana Point, California 92629, is
giving an opinion regarding the validity of the offered shares.
27
<PAGE>
EXPERTS
Our consolidated financial statements as of June 30, 1997 and June 30,
1998 and for the years ended June 30, 1997 and June 30, 1998 are included in
this Prospectus. These financial statements have been audited by Marcum &
Kliegman LLP, our independent public accountants, as indicated in their report
that accompanies the financial statements, and are included in this Prospectus
in reliance on the firm Marcum & Kliegman LLP as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
You may read and copy any report or document we file with the SEC at
the public reference facilities maintained by the SEC at 450 Fifth Street N.W.,
Room 1024, Washington, D.C. 20549 and at the SEC's regional offices located at
Seven World Center, Suite 1300, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Please call the SEC at 1-800-SEC-0880 for
more information about the public reference rooms. Our SEC filings are also
available from the SEC's web site located at http://www.sec.gov.
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act with respect to the common stock covered by this Prospectus.
This Prospectus, which is part of the Registration Statement, does not contain
all the information set forth in, or annexed as exhibits to, the Registration
Statement, as permitted by the SEC's rules and regulations. For further
information with respect to us and the common stock offered under this
Prospectus, please refer to the Registration Statement, including exhibits.
Copies of the Registration Statement, including exhibits, may be obtained from
the SEC's public reference facilities listed above upon payment of the fees
prescribed by the SEC, or may be examined without charge at these facilities.
Statements concerning any document filed as an exhibit are not necessarily
complete and, in each instance, we refer you to the copy of the document filed
as an exhibit to the Registration Statement.
We will provide, without charge, to each person to whom a copy of this
Prospectus is delivered, upon request, a copy of any or all of the information
incorporated herein by reference. Exhibits to any of the documents, however,
will not be provided unless such exhibits are specifically incorporated by
reference into such documents. The requests should be addressed to Peter C.
Zachariou, Diva Entertainment, Inc., 180 Varick Street, 13th Floor, NY, NY
10014, Telephone number (212)807-6994.
28
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
<TABLE>
<S> <C>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheet as of March 31, 1999 (unaudited)............ F-1
Consolidated Condensed Statement of Operations for the three months and
nine months ended March 31, 1999 (unaudited)................................... F-2
Consolidated Condensed Statement of Cash Flows for the nine months ended
March 31, 1999 (unaudited)..................................................... F-3
Notes to Consolidated Financial Statements (unaudited)........................... F-4
Independent Auditors Report...................................................... F-5
Consolidated Balance Sheet as of June 30, 1998................................... F-6
Consolidated Statement of Operations for the year ended June 30, 1998............ F-8
Consolidated Statement of Accumulated Deficit for the year ended June 30, 1998... F-9
Consolidated Statement of Cash Flows for the year ended June 30, 1998............ F-10
Notes to Financial Statements.................................................... F-12
PRIMA EAST WEST MODEL MANAGEMENT, INC. AND SUBSIDIARY
Independent Auditors Report...................................................... F-19
Consolidated Balance Sheet as of June 30, 1997................................... F-20
Consolidated Statement of Operations for year the ended June 30, 1997............ F-22
Consolidated Statement of Accumulated Deficit for the year ended June 30, 1997... F-23
Consolidated Statement of Cash Flows for the year ended June 30, 1997............ F-24
Notes to Financial Statements.................................................... F-26
</TABLE>
<PAGE>
DIVA ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
03/31/99 03/31/99 06/30/98
(UNAUDITED) (ADJUSTED)* (AUDITED)
----------- ----------- ---------
ASSETS $'000 $'000 $'000
----- ----- -----
<S> <C> <C> <C>
Current assets
Cash 0 708 24
Accounts receivable 1,040 1,040 571
Other current assets 205 205 227
------ ------ ------
Total current assets 1,245 1,953 822
Property plant and equipment, net of accumulated
depreciation of $75,000 and $23,000 at
03/31/99 and 06/30/98 respectively 429 429 281
Other assets
Goodwill and patents 571 571 607
Other assets 39 39 34
------ ------ ------
Total other assets 610 610 641
Total assets 2,284 2,992 1,744
====== ====== ======
LIABILITIES
Current liabilities
Overdraft 75 75 51
Accounts payable 621 621 468
Accrued liabilities 173 173 245
Other current liabilities 849 849 494
------ ------ ------
Total current liabilities 1,718 1,718 1,258
Other liabilities
Debt payable after 12 months 4,149 1,149 3,666
------ ------ ------
Total liabilities 5,867 2,867 4,924
SHAREHOLDERS' EQUITY
Common stock 47 5 47
Paid in Capital in excess of par value 451 51 451
Series A Convertible Preferred Stock 0 1,150 0
Series B Redeemable Convertible Preferred Stock 0 3,000 0
Retained earnings (4,038) (4,038) (3,635)
Unrealized loss on marketable securities (43) (43) (43)
Translation adjustment 0 0 0
------ ------ ------
Total shareholders' equity (3,583) 125 (3,180)
------ ------ ------
2,284 2,992 1,744
====== ====== ======
</TABLE>
* As adjusted to reflect (i) share exchange and reverse merger with Quasar
Projects Company, (ii) conversion of $3,000,000 in debt owed to JRConsulting,
Inc. into 3,000 shares of Series B Redeemable Preferred Stock, (iii) private
placement offering of 375 shares of Series A Convertible Preferred Stock, and
(iv) return of $42,000 to an investor from prior private placement.
The accompanying notes are an integral part of
the consolidated financial statements
F-1
<PAGE>
DIVA ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
03/31/99 03/31/98 03/31/99 03/31/98
---------- ---------- ---------- ----------
$'000 $'000 $'000 $'000
----- ----- ----- -----
<S> <C> <C> <C> <C>
Sales 510 291 1,281 1,016
Cost of Sales 0 0 0 0
--------- ---- --------- -----
Gross margin 510 291 1,281 1,016
SG&A expenses 558 408 1,592 1,208
Amortisation of goodwill & paten 12 12 36 36
--------- ---- --------- -----
Operating profit (loss) (60) (129) (347) (228)
Other loss/(income) 14 (1) 18 (287)
Interest expense 16 0 38 -
--------- ---- --------- -----
Pre-tax profit (loss) (90) (128) (403) 59
Income tax expenses - - - -
--------- ---- --------- -----
Net income (loss) (90) (128) (403) 59
========= ==== ========= =====
Weighted average number of
common shares outstanding 4,573,667 N/A 1,524,556 N/A
Net loss per share of common sto ($0.02) N/A ($0.26) N/A
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements
F-2
<PAGE>
DIVA ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(UNUADITED) (UNAUDITED)
9 MONTHS ENDED 9 MONTHS ENDED
03/31/99 03/31/98
-------------- --------------
$'000 $'000
----- -----
<S> <C> <C>
Operating activities
Net income (loss) (403) (228)
Depreciation & amortisation 87 41
Profit on sale of assets - 287
Change in other net operating assets (388) (209)
Other 879 211
---- ----
Net cash provided by (used in)
operating activities 175 102
Investing activities
Capital expenditures (199) 42
---- ----
Net cash provided by (used in)
investing activities (199) 42
Net cash provided by (used in)
financing activities 0 0
---- ----
Increase in cash (24) 144
Cash at July 1 24 0
Cash at March 31 0 144
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements
F-3
<PAGE>
DIVA ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included, and such adjustments are
of a normal recurring nature. Results for interim periods should not be
considered indicative of results for any other interim period or for future
years.
NOTE 2
No income taxes were paid during the nine months ended March 31, 1999.
NOTE 3
The effects of non-cash investing and financing activities have been excluded
from the statement of cash flows in accordance with SFAS 95.
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders of
Diva Entertainment, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Diva
Entertainment, Inc. and Subsidiaries as of June 30, 1998, and the related
consolidated statements of operations, accumulated deficit and cash flows for
the year ended June 30, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Diva Entertainment,
Inc. and Subsidiaries as of June 30, 1998, and the results of their operations
and their cash flows for the year ended June 30, 1998 in conformity with
generally accepted accounting principles.
Marcum & Kliegman LLP
September 4, 1998, except for Note 12 which is
dated April 28, 1999
F-5
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1998
ASSETS
------
<TABLE>
<S> <C> <C>
CURRENT ASSETS
- --------------
Cash and cash equivalents $ 23,861
Accounts receivable, less allowance for doubtful accounts of
$40,000 570,684
Marketable securities, market value 32,171
Due from parent 62,000
Notes receivable 87,637
Prepaid expenses and other current assets 45,087
------------
Total Current Assets $ 821,440
PROPERTY AND EQUIPMENT, Net 281,474
- -----------------------
OTHER ASSETS
- ------------
Goodwill, net of accumulated amortization of $111,774 606,771
Security deposits 34,112
------------
Total Other Assets 640,883
----------
TOTAL ASSETS $1,743,797
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1998
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
- -------------------
Cash overdraft $ 51,343
Accounts payable, talents 244,195
Accounts payable, other 223,465
Accrued expenses and other current liabilities 245,440
Legal reserves 413,151
Due to parent 80,322
-------------
Total Current Liabilities $ 1,257,916
OTHER LIABILITIES
- -----------------
Due to parent 3,386,850
Due to officers 279,080
-------------
Total Other Liabilities 3,665,930
------------
TOTAL LIABILITIES 4,923,846
STOCKHOLDERS' DEFICIENCY
- ------------------------
Common stock, $.01 par value; 10,000,000 shares
authorized, 4,500,000 shares issued and outstanding 45,000
Common stock, subscribed, $.01 par value; 221,000 shares 2,210
Additional paid in capital 450,713
Unrealized loss on marketable securities (42,947)
Accumulated deficit (3,635,025)
-----------
TOTAL STOCKHOLDERS' DEFICIENCY (3,180,049)
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 1,743,797
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended June 30, 1998
<TABLE>
<S> <C> <C>
REVENUE
- -------
Management fees, net $1,077,265
Production fees 234,478
Other 154,378
----------
TOTAL REVENUE $1,466,121
OPERATING EXPENSES
- ------------------
Selling, general and administrative expenses 1,874,120
----------
LOSS FROM OPERATIONS (407,999)
OTHER INCOME (EXPENSE)
- ----------------------
Interest income 4,334
Interest expense (6,129)
Gain on sale of studio 217,238
Miscellaneous income 81,245
----------
TOTAL OTHER INCOME 296,688
----------
NET LOSS $ (111,311)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF ACCUMULATED DEFICIT
For the Year Ended June 30, 1998
<TABLE>
<S> <C>
ACCUMULATED DEFICIT : Beginning $(3,523,714)
- ---------------------
Net Loss (111,311)
-----------
ACCUMULATED DEFICIT : Ending $(3,635,025)
- --------------------- ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended June 30, 1998
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net loss $(111,311)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization $ 73,681
Gain on sale of studio (217,238)
Decrease in allowance for doubtful accounts 18,000
Increase in accounts receivable (380,700)
Increase in prepaid expenses and other current assets (17,094)
Increase in security deposits (15,301)
Increase in cash overdraft 17,605
Increase in accounts payable, talent 76,633
Decrease in accounts payable, other (110,725)
Increase in accrued expenses and other current liabilities 166,438
---------
TOTAL ADJUSTMENTS (388,701)
---------
NET CASH USED IN OPERATING ACTIVITIES (500,012)
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchases of property and equipment (292,628)
Proceeds from sale of studio 241,566
Purchase of marketable securities, net (75,118)
---------
NET CASH USED IN INVESTING ACTIVITIES $(126,180)
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
For the Year Ended June 30, 1998
<TABLE>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Repayments of advances from employee $ (2,033)
Proceeds from officers' loans, net 263,346
Payments to parent, net (53,460)
Proceeds from private placement offering 442,200
----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES $ 650,053
-----------
NET INCREASE IN CASH AND CASH 23,861
EQUIVALENTS
CASH AND CASH EQUIVALENTS - Beginning -0-
- ------------------------- -----------
CASH AND CASH EQUIVALENTS - Ending $ 23,861
- ------------------------- ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- --------------------------------------------------
Cash paid during the year for:
Interest $6,129
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Diva Entertainment, Inc. ("Diva"), which is primarily a holding company,
was incorporated in the State of Florida on April 3, 1998 and is a
majority-owned subsidiary of J R Consulting, Inc. ("JRCI" or the
"Parent") which is a reporting company under the Securities and Exchange
Act of 1934.
On May 1, 1998, Diva issued 4,500,000 shares of common stock to JRCI in
exchange for 100% of the outstanding common stock of Prima Eastwest Model
Management, Inc. ("Prima") and Que Management Inc. ("Que"). The shares
issued were valued at the historical cost of JRCI's investment in Prima
and Que.
Prima was incorporated in the State of California on January 29, 1996 and
Que was incorporated in State of New York on December 29, 1997. Prima and
Que are in the business of providing management services to models and
talents in the entertainment industry, primarily in California and New
York. Prima also provides production services in California.
Successful operations are subject to certain risks and uncertainties
including, among others, all the problems, expenses, delays and other
risks inherent in developing and expanding the Company's client base,
actual and potential competition by entities with greater financial
resources, experience and market presence than the Company. Further risks
and uncertainties relate to the ability of the Company to generate
sufficient revenue and obtain financing and additional equity.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Diva and
its wholly owned subsidiaries Prima and Que, collectively referred to as
the "Company". All significant inter-company transactions have been
eliminated in consolidation. The consolidated financial statements
include the operations of Diva and Que for the period from inception to
June 30, 1998 and the operations of Prima for the year ended June 30,
1998.
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.
F-12
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
INCOME TAXES
The Company files a consolidated tax return with its Parent. Due to net
operating losses of the consolidated group, no income tax provision or
liability is required in the accompanying consolidated financial
statements.
Income taxes, if any, are provided for the tax effects of transactions
reported in the financial statement and consist of taxes currently due
and deferred taxes. Deferred taxes are recognized for differences between
the basis of assets and liabilities for financial statement and income
tax purposes and for operating losses and tax credits that are available
to offset future income.
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.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term investments with an original maturity of three months or less
to be cash equivalents.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
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.
NOTE 2 - MARKETABLE SECURITIES, MARKET VALUE
In accordance with FASB #115, the Company is required to classify each of
their investments into one of three categories, with different accounting
for each category. At June 30, 1998, management has classified all their
equity securities as available-for-sale securities, which are reported at
fair market value, with unrealized gains and losses excluded from
earnings and reported in a separate component of stockholder's equity.
Gains and losses on the sale of securities are recognized on a specific
identification basis. At June 30, 1998, the Company had marketable
securities of $32,171 with an unrealized loss of $42,947. The Company
also had realized gains of $75,180 resulting from sales of securities
during the year.
F-13
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - DUE FROM PARENT
Due from Parent represents advances made to the Parent by the Company,
which bears interest at 9% per annum with principal and accrued interest
due on January 1, 2000. For the year ended June 30, 1998, the Company has
forgiven the interest.
NOTE 4 - 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 $329,203, resulting in a gain of $217,238.
The selling price consists of cash payments and notes receivable with
interest at 8% per annum. At June 30, 1998, outstanding balance under the
notes is $87,637, including accrued interest of $4,267 (see Note 10).
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30, 1998:
ESTIMATED
AMOUNT USEFUL LIFE
--------- -----------
Office equipment and fixtures $110,791 5-7 years
Leasehold improvements 193,504 5 years
-------
304,295
Less: accumulated depreciation
and amortization 22,821
-------
Property and Equipment, net $281,474
========
Depreciation and amortization expense for the year ended June 30, 1998
was $25,778.
NOTE 6 - GOODWILL
Prima has goodwill resulting from a business combination, which is being
amortized on the straight-line method over fifteen (15) years. The
amortization expense for the year ended June 30, 1998 amounted to
$47,903.
NOTE 7 - 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.
F-14
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - DUE TO PARENT
Due to Parent, short-term, represents advances made to the Company by the
Parent which are non-interest bearing and is due on demand. The
outstanding balance at June 30, 1998 is $80,322.
Due to Parent, long-term, represents advances made to the Company by the
Parent, which bears interest at 9% per annum with principal and accrued
interest due on January 1, 2000. For the year ended June 30, 1998, the
Parent has forgiven the interest. The outstanding balance at June 30,
1998 is $3,386,850.
NOTE 9 - INCOME TAXES
The Company's total deferred tax assets, which primarily related to net
operating loss carryforwards, and tax effects of differences in financial
reporting and income tax reporting for amortization of goodwill, and the
related valuation allowance are as follows:
Total deferred tax assets $1,362,000
Less: valuation allowance 1,362,000
----------
Total Deferred Tax Asset $ -0-
==========
The Company has net operating loss carryforwards of approximately
$1,349,000 for federal income tax purposes at June 30, 1998 which expires
in the years 2009 through 2013.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
LEASING ARRANGEMENTS
The Company leases its New York office through a five-year non-cancelable
lease agreement expiring in December 2002. In addition, the Company rents
its Los Angeles office on a month to month basis. The Company also leases
certain equipment under non-cancelable operating leases that expire
through August 1998.
F-15
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND CONTINGENCIES, Continued
LEASING ARRANGEMENTS, continued
Future minimum rental commitments under the above noncancellable
operating leases as of June 30, 1998 are as follows:
FOR THE YEAR
ENDING JUNE 30, AMOUNT
--------------- -------
1999 $70,522
2000 70,596
2001 72,714
2002 74,892
2003 37,998
------
Total $326,722
========
Rent expense for the year ended June 30, 1998 was $75,013.
CONTINGENCY
In December 1997, Prima entered into an Agreement with an unrelated third
party to sell certain assets and liabilities (see Note 4). Pursuant to
this Agreement, Prima assigned the studio lease to the buyer. The future
commitments under the lease at June 30, 1998 amounted to $873,609 through
October 2007. Prima is contingently liable for these commitments in case
the buyer is in default of such payments.
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 guaranteed by Prima and collateralized by substantially all assets
of Prima. At the time of the commencement of the action, the balance was
$413,151 together with interest thereon from January 30, 1997. Prima is
vigorously defending the law suit and has asserted a cross-claim against
a co-defendant, one of the borrowers, who indemnified Prima with any
possible loss in connection with this loan. Due to no opinion can be
rendered at this time as to whether the co-defendant has sufficient
assets to cover the loss, Prima has established a reserve for $413,151.
NOTE 11 - PRIVATE PLACEMENT OFFERING
In May 1998, Diva commenced a private placement offering of its common
stock, wherein it proposed to sell up to 500,000 shares of common stock
at a price of $2.00 per share, which expires on July 31, 1998, subject to
an extension of the offering up to an additional 90 days. At June 30,
1998, the net proceeds received from the private offering in connection
with the sale of 221,000 subscribed shares of common stock was $397,800
(net of placement agent fee of $44,200). At June 30, 1998 the subscribed
stock was not yet formally issued.
F-16
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - PRIVATE PLACEMENT OFFERING, continued
In accordance with the private placement offering, the placement agent
will receive options exercisable until one year from the closing of the
offering to purchase up to 300,000 shares of common stock at $2.00 per
share. The placement agent and its selected dealers will receive for
selling shares to investors, a 10% commission on the selling price to the
investors.
NOTE 12 - SUBSEQUENT EVENT - PLAN OF REORGANIZATION
On April 28, 1999, but effective as of April 1, 1999, Diva Entertainment,
known as Quasar Projects Company, a Delaware corporation ("Quasar"),
acquired by reverse subsidiary merger Diva, received 4,225,000 shares of
Quasar's common stock, representing 76.9% of Quasar's outstanding common
stock, for JRCI's 95% equity interest in Diva. In connection with the
acquisition, Quasar changed its name to Diva Entertainment, Inc.
The subscribers to the May 1998 private placement by Diva (see Note 11),
who owned the other 5% equity interest in Diva, are entitled, at their
respective option, to either shares of Quasar's Series A Convertible
Preferred Stock (the "Series A Preferred") on the basis of one share of
the Series A Preferred for the subscription rights to 1,000 shares of
Diva's common stock or, by exercising dissenters' rights, the fair value
of their respective subscription rights for shares of Diva's common
stock. The Series A Preferred is entitled to cumulative annual dividends
of $60 per share and is convertible, at the option of the holder until
the first anniversary of its issuance, when it mandatorily converts, into
shares of Quasar's common stock at a conversion rate per share equal to
$1,000 divided by 65% of the average market price of Quasar's common
stock for the five trading days immediately prior to conversion.
Prior to, and as a condition to, the foregoing transaction Quasar did a
private placement of 750 share of its Series A Preferred for $1,500,000.
It received $750,000 of the offering proceeds in cash and a subscription
for the other $750,000, which is payable when Quasar files a registration
statement for the shares of its common stock underlying the Series A
Preferred shares.
JRCI also converted $3,000,000 of the debt owed to it by Diva and/or
Diva's subsidiaries, into 3,000 shares of Quasar's Series B Redeemable
Convertible Preferred Stock (the "Series B Preferred"). The Series B
Preferred is entitled to cumulative annual dividends of $30 per share, is
redeemable in whole or in part at the option of Quasar's Board of
Directors at a redemption price of $1,000 per share and is convertible,
at the option of the holder until the tenth anniversary of its issuance,
when it mandatorily converts, into shares of Quasar's common stock at a
conversion rate per share equal to $1,000 divided by 65% of the average
market pride of Quasar's common stock for the five trading days
immediately prior to conversion.
F-17
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - SUBSEQUENT EVENT - PLAN OF REORGANIZATION, continued
JRCI and Quasar also entered into an Option Agreement giving JRCI the
option to purchase such additional shares of Quasar's Common stock at its
par value of $.001 per share as are necessary for JRCI to maintain JRCI's
ownership of the outstanding shares of Quasar's common stock at no less
than 65%. The option expires when all of the shares of Quasar's Series A
Preferred have been converted into shares of Quasar's common stock.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders of
Prima Eastwest Model Management, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Prima Eastwest
Model Management, Inc. and Subsidiary as of June 30, 1997, and the related
consolidated statements of operations, accumulated deficit, and cash flows for
the year then ended. 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 conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Prima Eastwest Model
Management, Inc. and Subsidiary as of June 30, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Marcum & Kliegman LLP
September 18, 1997
F-19
<PAGE>
PRIMA EASTWEST MODEL MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1997
ASSETS
------
<TABLE>
<S> <C> <C>
CURRENT ASSETS
- --------------
Accounts receivable, less allowance for doubtful accounts of
$58,000 $ 288,377
Prepaid expenses and other current assets 4,999
Employee advances 25,535
----------
Total Current Assets $ 318,911
PROPERTY AND EQUIPMENT, Net 102,434
- -----------------------
OTHER ASSETS
- ------------
Goodwill, net of accumulated amortization of $63,871 654,674
Security deposits and other assets 19,139
----------
Total Other Assets 673,813
----------
TOTAL ASSETS $1,095,158
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
PRIMA EASTWEST MODEL MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1997
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
- -------------------
Cash overdraft $ 4,084
Accounts payable, talents 167,562
Accounts payable, other 356,545
Accrued expenses and other current liabilities 87,043
Due to employees 60,398
Due to officer 15,734
Litigation liability 413,151
------------
Total Current Liabilities $ 1,104,517
OTHER LIABILITIES
- -----------------
Due to parent 3,458,632
----------
TOTAL LIABILITIES 4,563,149
STOCKHOLDERS' DEFICIENCY
- ------------------------
Common stock, no par value; 1,000,000 shares
authorized, 100 shares issued and outstanding
Additional paid in capital 55,723
Accumulated deficit (3,523,714)
-----------
TOTAL STOCKHOLDERS' DEFICIENCY (3,467,991)
----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $1,095,158
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
PRIMA EASTWEST MODEL MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended June 30, 1997
<TABLE>
<S> <C> <C>
REVENUE
- -------
Management fees, net $ 812,848
Production fees 306,106
Other 55,154
----------
TOTAL REVENUE $1,174,108
OPERATING EXPENSES
- ------------------
General and administrative 1,178,281
Selling 262,957
----------
TOTAL OPERATING EXPENSES 1,441,238
----------
OPERATING LOSS (267,130)
OTHER INCOME (EXPENSE)
- ----------------------
Interest expense (745)
Miscellaneous income 2,419
----------
TOTAL OTHER INCOME 1,674
-----------
NET LOSS $ (265,456)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
PRIMA EASTWEST MODEL MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF ACCUMULATED DEFICIT
For the Year Ended June 30, 1997
<TABLE>
<S> <C>
ACCUMULATED DEFICIT : Beginning $(3,258,258)
- ---------------------
Net Loss (265,456)
-----------
ACCUMULATED DEFICIT : Ending $(3,523,714)
- --------------------- ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
PRIMA EASTWEST MODEL MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended June 30, 1997
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net loss $(265,456)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization $ 58,359
Decrease in allowance for doubtful accounts 18,000
Decrease in accounts receivable 48,591
Increase in prepaid expenses and other
current assets (599)
Increase in employee advances (16,511)
Decrease in security deposits and other assets 2,006
Decrease in accounts payable, talent (73,202)
Decrease in accounts payable, other (128,842)
Decrease in accrued expenses and other
current liabilities (18,702)
TOTAL ADJUSTMENTS (110,900)
---------
NET CASH USED IN OPERATING ACTIVITIES (376,356)
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Advances to officer, net 237,000
Purchase of property and equipment (80,011)
--------
NET CASH PROVIDED BY
FINANCING ACTIVITIES $ 156,989
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
PRIMA EASTWEST MODEL MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
For the Year Ended June 30, 1997
<TABLE>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from loan due to parent $ 224,873
Proceeds from loan due to officer, net (37,266)
Proceeds from loan due to employee, net 60,398
----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 248,005
-----------
NET INCREASE IN CASH 28,638
CASH (OVERDRAFT) - Beginning (32,722)
- ---------------- -----------
CASH (OVERDRAFT) - Ending $ (4,084)
- ---------------- ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- --------------------------------------------------
Cash paid during the year for interest $745
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
PRIMA EASTWEST MODEL MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Prima Eastwest Model Management, Inc. and Subsidiary is in the business
of providing management services to models and talents in the
entertainment industry, primarily in California. The Company also
provides related studio rental and production services in California.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of United
Prima Omar, Inc. ("UPO"), a wholly owned subsidiary of the Company. All
significant intercompany transactions have been eliminated in
consolidation.
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.
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.
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 is a reasonable
estimate of fair value. The fair value of long-term debt is estimated to
approximate fair market value based on the current rates offered to the
Company for debt of the same remaining maturities.
F-26
<PAGE>
PRIMA EASTWEST MODEL MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statement and consist of taxes currently due and deferred
taxes. Deferred taxes are recognized for differences between the basis of
assets and liabilities for financial statement and income tax purposes
and for operating losses and tax credits that are available to offset
future income.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30, 1997:
ESTIMATED
AMOUNT USEFUL LIFE
------ -----------
Office equipment and fixtures $ 21,982 5-7 years
Studio 21,486 5-7 years
Leasehold improvements 74,064 5 years
--------
117,532
Less: accumulated depreciation
and amortization 15,098
--------
Property and Equipment, net $102,434
========
Depreciation and amortization expense for the year ended June 30, 1997
was $10,456.
NOTE 3 - DUE TO OFFICER
Due to officer represents advances made by an officer of the Company
which are noninterest bearing and have no definite repayment terms.
NOTE 4 - DUE TO PARENT
Due to Parent represents advances made to the Company by the Parent which
bears interest at 9% per annum with principal and accrued interest due on
January 1, 2000. For the year ended June 30, 1997, the Parent has
forgiven the interest.
F-27
<PAGE>
PRIMA EASTWEST MODEL MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - GOODWILL
Goodwill of $718,545 from a business combination is being amortized under
the straight-line method over 15 years. Amortization of goodwill amounted
to $47,903 for the year ended June 30, 1997.
NOTE 6 - INCOME TAXES
No provision has been made in the accompanying financial statements for
income tax expense as a result of the current operating loss and net
operating loss carryforwards which are fully reserved.
The Company's total deferred tax assets, which relate to net operating
loss carryforwards, and tax effects of differences in financial reporting
and income tax reporting for amortization methods, and the related
valuation allowance are as follows:
Total deferred tax assets $1,519,233
Less valuation allowance 1,519,233
----------
Total deferred tax asset $ -0-
==========
The Company has net operating loss carryforwards of approximately
$1,120,000 for federal income tax purposes at June 30, 1997 which expire
through 2012.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
LEASING ARRANGEMENTS
The Company leased office space under a noncancelable operating lease
which expired in May 1996. The Company subsequently moved its office
facilities and leases space on a month to month basis without a formal
written lease agreement. The Company also leases studio space under a
noncancellable operating lease. In September 1996, the lease agreement
was extended through October 2007. The lease payments are subject to
increases in accordance with the lease agreement based on fixed
percentages and prevailing market rates in the future. The Company also
leases certain equipment under noncancelable operating leases which
expired in June 1997. Rent expense for the year ended June 30, 1997 was
$183,562.
F-28
<PAGE>
PRIMA EASTWEST MODEL MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - COMMITMENTS AND CONTINGENCIES, continued
LEASING ARRANGEMENTS, continued
Future minimum rental commitments under such noncancellable operating
leases as of June 30, 1997 are as follows:
FOR THE YEAR
ENDING JUNE 30, AMOUNT
--------------- ----------
1998 $ 116,644
1999 108,821
2000 108,529
2001 101,411
2002 95,554
Thereafter 501,658
----------
Total $1,032,617
==========
LITIGATION
The Company is a defendant in litigation with a financial lender (the
"Lender") which was filed in February 1997. The Lender is claiming the
Company owes it $413,151 based on a demand loan for funds which the
Company had guaranteed in September 1990 (the "Loan") and provided as
collateral substantially all the assets of the Company in connection with
the Loan. As part of the merger agreement, as described in Note 1, a
former stockholder of the Company (the "Stockholder") had assumed the
Loan. The Stockholder subsequently defaulted on the Loan and the Lender
sued the Company for payment. The Company is vigorously defending the
lawsuit and no outcome of this case can be determined at this time.
The Company is also a defendant in a lawsuit filed by an original
borrower (the "Borrower") of the Loan, filed in February 1997, who is
also named as a defendant in the above lawsuit filed by the Lender. The
Borrower is claiming the Company is responsible for the Loan. The Company
is also vigorously defending this lawsuit and no outcome of this case can
be determined at this time.
The Company has recorded a liability for $413,151, the amount of the
guarantee, as a litigation liability along with a corresponding charge to
goodwill for the same amount, both of which reflect recording the
liability as a preacquisition contingency in accordance with Statement on
Financial Accounting Standards No. 38 - Accounting for Preacquisition
Contingencies of Purchased Enterprises.
F-29
<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus in connection with the offering made hereby, and
any information or representation not contained or incorporated herein must not
be relied upon as having been authorized by us. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy the shares
offered hereby in any jurisdiction where, or to any person to whom, it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sales made hereunder shall, under any circumstances, created
any implication that there has been no change in our affairs since the date
hereof or that the information contained herein is correct as of any time
subsequent to its date.
DIVA ENTERTAINMENT, INC.
COMMON STOCK
PROSPECTUS
______________________, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 145 of the General Corporation Law of the
State of Delaware, Article Seventh of the Registrant's Certificate of
Incorporation, and Article V of the Registrant's Bylaws. Moreover, the
Registrant intends to enter into indemnification agreements with each of the
Company's directors and officers.
As a result of such provisions and the agreements, the Registrant's
security holders may be unable to recover monetary damages against directors and
officers for action taken by them which constitute negligence or gross
negligence or which are in violation of their fiduciary duties, although it may
be possible to obtain injunctive or other equitable relief with respect to such
actions. If equitable remedies are found not be available for any particular
case, security holders may not have any effective remedy against the challenged
conduct.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the issuance and distribution of the securities offered hereby.
The Registrant is responsible for the payment of all expenses in connection with
this offering.
Securities and Exchange Commission registration fee $ 2,120.00
Legal fees and expenses $ 12,500.00
Accounting fees and expenses $ 5,000.00
Printing and engraving $ 500.00
Blue Sky fees $ 2,500.00
Miscellaneous $ 2,380.00
-----------
Total $ 25,000.00
All amounts except the Securities and Exchange Commission are
estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth the Registrant's sale of its securities within
the last three years, which securities were not registered under the Securities
Act:
1. In May, 1998, our predecessor company, Diva, acquired all of the
outstanding and issued stock of two companies, Prima Eastwest Model
Management, Inc. and Que Management, Inc. from J R Consulting, Inc. in
exchange for issuing 4,500,000 of
<PAGE>
its own stock to J R Consulting, Inc. (which was then the total
outstanding and issued stock of Diva).
2. In May 1998, Diva effected a private placement of 221,000 shares
of its common stock resulting in gross proceeds to Diva of
$442,000. The securities were sold on a "best efforts" basis to
accredited investors pursuant to Rule 504 of Regulation D promulgated
under the Securities Act of 1933, as amended. In connection with this
transaction, Diva did pay a commission to Burlington Securities Corp.,
the placement agent for Diva.
3. On December 30, 1998, Diva and its parent, J R Consulting, Inc.,
entered into an Agreement and Plan of Reorganization with our
wholly-owned subsidiary, Diva Acquisition Corp. This Agreement was
consummated on April 28, 1999, effective April 1, 1999. Under this
Agreement, Diva was acquired by merger into Diva Acquisition Corp. for
4,225,000 shares of Diva's common stock. On that date, Diva owed
$4,500,000 to its parent company, J R Consulting, Inc. and had
subscription obligations to issue 221,000 shares of its common stock to
others (the "Diva Subscribers"). Diva agreed to issue 221 shares of
preferred stock to the Diva Subscribers. Finally, Diva granted J R
Consulting an option pursuant to which JR Consulting may purchase, at a
price of $.001 per share at any time until the date on which all shares
of Series A Preferred Stock are converted into common stock, such
number of shares of common stock as would enable J R Consulting to
maintain its ownership percentage of the outstanding shares of our
common stock at no less than 65% plus an additional 1% multiplied by a
fraction, the numerator of which is $3,000,000 minus the dollar amount
raised in private placements of our Series A Redeemable Convertible
Preferred Stock and the denominator of which is 85,714.
4. Also in April 1999, Diva entered into subscription agreements with
private accredited investors for the sale of 750 shares of Series A
Convertible Preferred Stock for $1,500,000 in the aggregate. From these
subscription agreements, Diva has actually received gross proceeds of
$750,000. The balance, $750,000, is payable upon filing of this
Registration Statement.
These shares were all issued without registration under the Securities
Act of 1933, as amended, by reason of the exemption from registration afforded
by the provisions of Section 4(2) thereof, as transaction by an issuer not
involving a public offering, or Section 3(b) thereof. Each recipient of shares
delivered appropriate investment representations to the Registrant with respect
thereto and consented to the imposition of restrictive legends upon the
certificates evidencing the shares.
2
<PAGE>
ITEM 27. EXHIBITS
2.1 Agreement and Plan of Reorganization, dated December 30, 1998 between
Registrant, Diva Entertainment, Inc., Diva Acquisition Corp. and J R
Consulting, Inc. (1)
3.1 Certificate of Incorporation. (2)
3.2 By-laws. (2)
3.3 Amendment to Certificate of Incorporation changing name to Diva
Entertainment, Inc. (1)
3.4 Certificate of Designation - Series A Convertible Preferred Stock. (3)
3.5 Certificate of Designation - Series B Redeemable Convertible Preferred
Stock. (3)
5.1 Opinion of Hand & Hand. (3)
21.2 List of subsidiaries.
23.1 Consent of Hand & Hand. (3)
23.2 Consent of Marcum & Kliegman LLP, independent public accountants. (3)
24.1 Power of attorney (included in the signature page hereof).
27.1 Financial Data Schedule.
- -------------------------------
(1) Incorporated by reference to the exhibit of same number filed with the
Company's 8-K dated April 28, 1999 and filed August 9, 1999.
(2) Incorporated by reference to the exhibit of same number filed with the
Company's registration statement on Form 10-SB, File No. 0-23506.
(3) To be filed by amendment.
ITEM 28. UNDERTAKINGS.
(a) Rule 415 Offering. The undersigned Registrant hereby undertakes to:
(1) File, during any period in which if offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by Section 10(a) (3)
of the Securities Act.
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered
(if the total dollar value of securities offered
would not exceed that which was registered) and any
deviation from the low or high end of the estimated
maximum offering range many be reflected in the form
of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change
in the
3
<PAGE>
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement.
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial BONA FIDE offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(b) REQUEST FOR ACCELERATION OF EFFECTIVE DATE. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to
directors, officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person in connection with the securities being
registered), the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of New
York, State of New York on October 25, 1999.
DIVA ENTERTAINMENT, INC.
By: /s/ PETER C. ZACHARIOU
---------------------------
Peter Zachariou, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Peter C. Zachariou his true and
lawful attorney-in-fact, with full power of substitution and resubstitution for
him and in his name, place and stead, in any and all capacities, to sign any or
all amendments, including any post-effective amendments, to this Registration
Statement, and to file the same with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute, each
acting alone, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ PETER C. ZACHARIOU October 25, 1999
- ------------------------------- President and Director
Peter C. Zachariou (Principal Executive Officer)
/s/ DAVID LEAN October 25, 1999
- ------------------------------- Chief Financial Officer and Director
David Lean
/s/ MAXO BENALAL BENDRIHEM October 25, 1999
- ------------------------------- Director
Maxo Benalal Bendrihem
</TABLE>
5
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
21.1 List of subsidiaries
27.1 Financial Data Schedule
EXHIBIT 21.1
LIST OF SUBSIDIARIES
The following is a list of the Company's subsidiaries:
- - Diva Entertainment, Inc. is a Florida corporation which owns Prima
Eastwest Model Management, Inc. and Que Management, Inc...
- - Prima Eastwest Model Management, Inc. is a California corporation.
- - Que Management, Inc. is a New York corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 23,861
<SECURITIES> 32,171
<RECEIVABLES> 610,684
<ALLOWANCES> 40,000
<INVENTORY> 0
<CURRENT-ASSETS> 821,440
<PP&E> 281,474
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,743,797
<CURRENT-LIABILITIES> 1,257,916
<BONDS> 0
0
0
<COMMON> 47,210
<OTHER-SE> 3,227,259
<TOTAL-LIABILITY-AND-EQUITY> 1,743,797
<SALES> 0
<TOTAL-REVENUES> 1,466,121
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,874,120
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,795
<INCOME-PRETAX> (111,311)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 217,238
<CHANGES> 0
<NET-INCOME> (111,311)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
