U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________.
Commission file number 0-23506
DIVA ENTERTAINMENT, INC.
(Exact name of small business issuer in its charter)
Delaware 33-0601498
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 Varick Street, 13th Floor, New York, New York 10014
-------------------------------------------------------
(Address of principal executive offices)
(212) 807-6994
--------------
(Issuer's telephone number)
N/A
---
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO _______
The number of shares outstanding of the issuer's Common Stock, $.001
par value per share, as of May 17, 2000 is 5,498,800.
Transitional Small Business Disclosure Format (check one):
YES ______ NO X
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Information
Diva Entertainment, Inc.
Consolidated Condensed Balance Sheet
<TABLE>
<CAPTION>
3/31/00 6/30/99
(unaudited) (audited)
Assets $ $
<S> <C> <C>
Current assets
Cash ......................................... 128,700 --
Accounts receivable .......................... 1,150,230 1,201,860
Other current assets ......................... 291,565 151,599
---------- ----------
Total current assets ............................... 1,570,495 1,353,459
Property, plant and equipment, net of accumulated
depreciation of $163,095 and $96,792 at
March 31, 2000 and June 30, 1999,
respectively ................................. 342,416 349,316
Other assets
Goodwill ..................................... 522,947 558,872
Other assets ................................. 39,293 42,775
---------- ----------
Total other assets ................................. 562,240 601,647
Total Assets ................................. 2,475,151 2,304,422
========== ==========
Liabilities
Current liabilities
Overdraft .................................... -- 183,045
Accounts payable ............................. 802,822 831,467
Accrued liabilities .......................... 276,107 161,242
Other current liabilities .................... 990,341 1,195,258
---------- ----------
Total current liabilities .......................... 2,069,270 2,371,012
Other liabilities
Debt payable after 12 months ................. 116,071 192,448
---------- ----------
Total Liabilities ............................ 2,185,341 2,563,460
Series B Redeemable Convertible Preferred
Stock, $0.001 par value, 3,000 shares issued
and outstanding .............................. 3,000,000 3,000,000
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<PAGE>
Stockholders' Deficiency
Common stock ....................................... 5,498 5,498
Paid in capital in excess of par value ............. 50,425 50,425
Series A Convertible Preferred Stock ............... 1,150,000 1,150,000
Series C Convertible Preferred Stock ............... 100,000 0
Accumulated Deficit ................................ (4,016,113) (4,464,961)
---------- ----------
Total Stockholders' Deficiency ............... (2,710,190) (3,259,038)
---------- ----------
Total Liabilities and Stockholder's Deficiency 2,475,151 2,304,422
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
Consolidated Financial Information
Diva Entertainment, Inc.
Consolidated Condensed Statement of Income
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
3/31/00 3/31/99 3/31/00 3/31/99
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue .......................... $ 615,271 $ 509,738 $ 1,767,299 $ 1,281,239
SG&A expenses .................... 631,829 557,923 1,749,104 1,592,288
Amortization of goodwill ......... 11,975 11,974 35,925 35,925
----------- ----------- ----------- -----------
Operating Profit (Loss).. (28,533) (60,159) (17,730) (346,974)
Other income and provisions ...... 502,988 14,000 502,988 18,067
Interest expense ................. 35,338 15,763 36,408 37,703
----------- ----------- ----------- -----------
Pre-Tax Profit (Loss) ... 439,117 (89,922) 448,850 (402,744)
Income tax expense ............... -- -- -- --
----------- ----------- ----------- -----------
Net Income (Loss) ....... $ 439,117 $ (89,922) $ 448,850 $ (402,744)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding ........ 5,498,800 4,573,667 5,498,800 1,524,556
Net income (loss) per
share of common stock ............ $0.08 $(0.02) $0.08 $(0.26)
</TABLE>
The accompanying notes are an integral part of consolidated financial
statements.
4
<PAGE>
Consolidated Financial Information
Diva Entertainment, Inc.
Consolidated Condensed Statement of Cash Flows
Nine Months Ended
3/31/00 3/31/99
(unaudited) (unaudited)
----------- -----------
$ $
Operating activities
Net income (loss) .................. 448,850 (402,744)
Depreciation and amortization ...... 102,227 88,083
Change in other net operating assets (207,033) 111,382
Increase in cash overdraft ......... (183,045) 23,645
Other .............................. (72,895) (355,135)
-------- --------
Net cash provided by (used in)
operating activities ............... 88,104 175,501
Investing activities
Capital expenditures ............... (59,404) (199,362)
Net cash provided by (used in)
investing activities ............... (59,404) (199,362)
Financing activities
convertible preferred stock ........ 100,000 --
-------- --------
Net cash provided by (used in)
financing activities ............... 100,000 --
Increase in cash ............................ 128,700 (23,861)
Cash at July 1 .............................. -- 23,861
Cash at March 31............................. 128,700 --
The accompanying notes are an integral part of the consolidated financial
statements.
5
<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 and with the instructions to Form 10-QSB. 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 three months ended March 31, 2000.
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.
6
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
Three Months Ended March 31, 2000 as Compared to Three Months Ended March 31,
1999
Revenue increased by approximately $106,000 or 21% from $510,000 for
the three months ended March 31, 1999 to $615,000 for the three months ended
March 31, 2000. Increased marketing efforts have resulted in the Los Angeles
office recovering to the revenue levels previously achieved for corresponding
quarters and the New York office continuing its growth from its initial start up
in January 1998.
SG&A expenses increased by $74,000 or 13% from $558,000 for the three
months ended March 31, 1999 to $632,000 for the three months ended March 31,
2000. Since the corporate expenses decreased by $32,000, this represents an
increase in SG&A expenses by the operating companies in Los Angeles and New York
similar to the increase in revenue. This continues to be an area on which
management is focusing. Although while the Company is growing there will
certainly be some development expenses incurred that will not be repeated,
management continues to focus on maintaining costs.
The Company therefore reduced its operating loss by $32,000 from
$60,000 for the three months ended March 31, 1999, to $28,000 for the three
months ended March 31, 2000.
During the three months ended March 31, 2000, a settlement was reached
regarding an outstanding loan of $503,000 that was the responsibility of the
previous management but for which they had caused Prima Eastwest Model
Management, Inc. ("Prima"), the Los Angeles based subsidiary of the Company, to
guarantee. Consequently, the provision to pay that debt that had initially been
charged against the operating profit of Prima in 1996 has been reversed. For the
three months ended March 31, 2000 the Company also accrued an interest charge of
$35,000 for a Prima debt that is expected to be settled by the end of the
current fiscal year. At the same time, as a result of restructuring the Company
did not incur the loan interest of $16,000 that was incurred during the three
months ended March 31, 1999.
As a result, the Company reported operating income of $439,000 for the
three months ended March 31, 2000 as compared to a loss of $90,000 for the three
months ended March 31, 1999.
Nine Months Ended March 31, 2000 as Compared to Nine Months Ended March 31, 1999
Revenue increased by approximately $486,000 or 38% from $1,281,000 for
the nine months ended March 31, 1999 to $1,767,000 for the nine months ended
March 31, 2000. Over 70% of this increase came from the Company's New York
office which continues to expand since its start up in January 1998. The
increased revenue from the Los Angeles office also reflects a recovery from a
first quarter of the current fiscal year when revenues were lower than
anticipated and clearly confirms that further improvement is achievable.
SG&A expenses increased by $157,000 or 10% from $1,592,000 for the nine
months ended March 31, 1999 to $1,749,000 for the nine months ended March 31,
2000. Since the corporate expenses decreased by $104,000, this represents an
increase in SG&A expenses by the operating companies in Los Angeles and New York
of $261,000. Over 60% of these increased SG&A expenses incurred by the operating
companies were incurred by the Los Angeles company. While
7
<PAGE>
this is partly due to the new and more expensive rented office, management is
reviewing the expenses to ensure that they do not continue to increase at levels
so much above inflation without a corresponding increase in productivity and
revenue. The increase in SG&A expenses in the New York subsidiary corresponds
with the increase in revenue.
The Company therefore reduced its operating loss by $329,000 from
$347,000 for the nine months ended March 31, 1999 to $18,000 for the nine months
ended March 31, 2000.
As a result of the restructuring, the Company did not incur the loan
interest of $36,000 for the nine months ended March 31, 2000 that was incurred
during the nine months ended March 31, 1999. The results for the nine months
ended March 31, 2000 do include the reversal of the provision of $503,000 and
the interest charge of $35,000 referred to in the report for the three months
ended March 31, 2000.
As a result, the Company reported a profit of $448,000 for the nine
months ended March 31, 2000 in contrast to a loss of $403,000 for the nine
months ended March 31, 1999.
Liquidity and Capital Resources
Notwithstanding the significant improvement the Company has made
increasing revenues and improving gross margins over the nine months ended March
31, 2000, the Company has a working capital deficit of $499,000. This is an
improvement of $519,000 over the working capital deficit of $1,018,000 at June
30, 1999 of which $503,000 came from resolving a liability disputed by the
Company enabling it to reverse a provision for that amount. The Company intends
to improve working capital by increasing revenue. In addition, the Company may
raise additional capital in order to fund existing operations as well as growth
although no assurance can be given that it will obtain additional funding.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
In March 2000, the Company sold 100 shares of Series C Convertible
Preferred Stock. The shares were sold to an accredited investor in a private
transaction exempt from registration under the Securities Act of 1933, as
amended. No fees or commissions were paid to brokers in connection with this
transaction. The gross proceeds of $100,000 were used for working capital.
Item 6. Exhibits and Reports on Form 8-K
On March 2, 2000, the Company filed an amendment to its Current Report
on Form 8-K dated April 28, 1999 regarding a corporate reorganization effective
April 1, 1999. The purpose of this amendment was simply to incorporate by
reference certain financial statements of the business acquired.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIVA ENTERTAINMENT, INC.
Date: May 22, 2000 By: /s/ PETER C. ZACHARIOU
-----------------------------
Peter C. Zachariou, President
9
<PAGE>
Exhibit Index
Exhibit Description
- ------- -----------
27.0 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 128,700
<SECURITIES> 0
<RECEIVABLES> 1,150,230
<ALLOWANCES> 157,750
<INVENTORY> 0
<CURRENT-ASSETS> 1,570,496
<PP&E> 342,416
<DEPRECIATION> 163,095
<TOTAL-ASSETS> 2,475,151
<CURRENT-LIABILITIES> 2,069,270
<BONDS> 0
0
4,250,000
<COMMON> 5,498
<OTHER-SE> (3,965,688)
<TOTAL-LIABILITY-AND-EQUITY> 2,475,151
<SALES> 0
<TOTAL-REVENUES> 1,767,299
<CGS> 0
<TOTAL-COSTS> 147,532
<OTHER-EXPENSES> 1,637,497
<LOSS-PROVISION> (345,238)
<INTEREST-EXPENSE> 36,408
<INCOME-PRETAX> 448,850
<INCOME-TAX> 0
<INCOME-CONTINUING> 448,850
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 448,850
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
