U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NO. 2-78335-NY
DIVA ENTERTAINMENT, INC.
------------------------
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 33-0601498
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
180 VARICK STREET, 13TH FLOOR, NEW YORK, NEW YORK 10014
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER: (212) 807-6994
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
NONE NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT: NONE
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Company was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES [ ] NO [X]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State the issuer's revenues for its most recent fiscal year: $1,814,000
The aggregate market value of the voting and non-voting equity held by
non-affiliates is not determinable since the Company's common stock is not
traded.
State the number of shares outstanding of the issuer's classes of common equity,
as of the latest practicable date: 5,508,800 shares of Common Stock, $.01 par
value per share, as of January 31, 2000.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Diva Entertainment, Inc., a Delaware corporation (the "Company"), was
incorporated in December 1992 in the State of Delaware under the name Quasar
Projects Company. The Company was formed for the purpose of merging with or
acquiring an operating company with operating history and assets. The primary
activity was seeking companies with which to merge or to acquire. From its
inception through April 28, 1999, the Company generated nominal revenues and,
prior to April 28, 1999, the Company did not actively engage in business for at
least one fiscal year.
Since April 28, 1999, the Company has been engaged in the business of
owning, operating and managing modeling agencies through its subsidiary Diva
Entertainment, Inc., a Florida corporation ("Diva-Florida"), and its
subsidiaries - Prima Eastwest Model Management, Inc, a California corporation
("Prima"), and Que Management, Inc, a New York corporation ("Que").
RECENT DEVELOPMENTS
DIVA REORGANIZATION
Effective April 1, 1999, the Company issued 4,225,000 shares of common
stock to JR Consulting Inc., a Nevada corporation ("JRCI"), in consideration for
all of the issued and outstanding shares of Diva-Florida which owns all of the
issued and outstanding shares of Prima and Que. In addition, as part of this
transaction, the Company issued 200 shares of Series A Convertible Preferred
Stock to subscribers to a private offering conducted by Diva-Florida. As a
result of this transaction, Diva-Florida became a wholly owned subsidiary of the
Company and JRCI acquired shares representing 76.8% of the Company's issued and
outstanding common stock.
Also in connection with the merger, JRCI agreed to convert $3,000,000
of debt, owed to it by Diva-Florida, into 3,000 shares of Series B Redeemable
Convertible Stock of the Company. In addition, the Company entered into an
Option Agreement with JRCI, so that JRCI would maintain its ownership percentage
of the outstanding common stock in a range between 65% and 92%, exclusive of any
conversions of the Series B Redeemable Convertible Preferred Stock into shares
of common stock.
The merger was contingent upon the Company selling 350 shares of
Series A Convertible Preferred Stock at $2,000 per share to private investors.
As of the effective date of the merger, 375 shares of Series A Convertible Stock
were sold to investors, resulting in $750,000 of gross proceeds to
Diva-Delaware.
THE BUSINESS
The Company is in the business of representing talent including
professional fashion models, commercial actors and theatrical actors. The talent
management business, including model management, is based upon obtaining talent
and matching talent to clientele. Traditional modeling clientele include print
and television advertising, and runway. Both male and female fashion models have
a limited career span. Most professional models are aged between 18 and
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25 years, although there is a limited market for child and mature models. As a
result, the talent management business is characterized by continuous talent
turnover, the need to discover new talent and the need to anticipate and adapt
to changing consumer tastes.
Talent management fees are based on a percentage of the model's fee,
plus additional fees paid by the clientele. The Company's over 500 clients
include magazine publishing houses, designers, national retailers and catalogs
including Elle Magazine, Talbot's, Nordstroms, Banana Republic and Macy's.
The Company anticipates opening model agencies in additional areas in
the future. Management is evaluating opportunities in Florida and London.
However, management is only at the evaluation stages. The Company has not signed
any letters of intent or agreements to open any additional agencies and can make
no assurances that any additional agencies will be opened.
SERVICES
Prima is divided into two principal divisions, which are designated
"Print" and "Profile." An experienced manager in the particular field is in
charge of each division. Que is managed by two experienced managers in the field
of print. The Print divisions of Prima and Que operate in the competitive
modeling agency field and are subdivided into male and female subdivisions.
Prima also provides hair, make up and styling services for models, actors,
actresses and celebrities through its Profile division. This division not only
offers an important service to the Print division, but it also provides Prima
with an entry into the celebrity/entertainment field.
Prima intends to commence operation of a Talent and Commercial
division, although there is no assurance that this will occur. This division
will seek to introduce models who may have a career in the print modeling
industry into both the audio and visual entertainment industry and conversely to
expand the exposure and portfolio of artists currently in audio and visual
entertainment in the print modeling industry.
MARKETING
The traditional markets for Prima and Que are in the field of print.
This includes not only magazines such as Vanity Fair, Glamour, GQ, Mirabella,
Cosmopolitan, Allure and Vogue; but also advertising agencies; catalogues; movie
production companies such as Universal, Paramount and Warner Brothers; and
general industry such as Calvin Klein, Levi's, ABC Television, and the Gianni
Versace organization.
Prima and Que advertise in trade journals used extensively by
professionals seeking print modeling services. Furthermore, industry magazines
and television have viewed Prima and Que as being high-profile, fast-growing
boutique agencies. Prima and Que's models have been widely seen on magazine
covers. This creates a flow of new clients and new models. Prima and Que also
rely on their reputations to attract clients and model talent.
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COMPETITION
Prima's Print division and Que both compete with the major world-wide
model agencies, several of which are headquartered in New York. Each of Prima
and Que also competes with many smaller regional firms. Because each of Prima
and 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
Los Angeles market, Prima and Que can compete with the major agencies on a
world-wide basis.
While the New York market with the larger firms tends to attract the
super models with its major European markets and larger fee income, Los Angeles
on the other hand attracts models who are also seeking an entry into the
entertainment industry. The entertainment industry dominates the Los Angeles
market and Prima is thus able to provide agency services for models to both
print and entertainment industry work. In particular, the success to date of its
Profile division, with its service of both the modeling and celebrity market,
and the proposed introduction of the Talent and Commercial division at Prima,
should provide a highly competitive position for Prima in the entertainment and
modeling industry, particularly in the Los Angeles area, although there is no
assurance that this will continue. A competitor of Profile also operates a hair
and makeup division to try and compete in this attractive market.
Working as a team and having the expertise of the other in its
particular region, Que and Prima are each able to operate more effectively and
efficiently by coordinating many of the jobs between the two companies. This
enhances their ability to compete with the major world-wide model agencies.
Notwithstanding this, there can be no assurance that the Company can compete
effectively in the future.
CUSTOMER AND TALENT BASE
Prima has been in business for over ten years. Over that period, it has
maintained a wide base of both customers and models. The client base is very
diverse from department stores to record companies and movie production firms
and is not linked solely to the geographic Los Angeles market. Que, although
opened more recently on January 5, 1998, also has a similarly diverse client
base.
Any modeling agency must expand by increasing the talent that it has as
part of its portfolio. Que and Prima have had and continue to have a foundation
of existing talent, both male and female. The talent base is very diverse
including models with different ethnic backgrounds and looks. Furthermore, Que
and Prima operate a year-round scouting program with individual scouts traveling
around the United States, Europe (both central and eastern) and South America in
search of new talent.
The wide base in both customers and talent enables Prima and Que to
meet the demands of its industry. This wide base in customers and talent will
also enable Diva to expand its operations.
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EMPLOYEES
At June 30, 1999, the Company had 22 employees. None of the employees
is subject to any collective bargaining agreement. Prima and Que consider their
relationships with their employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's current address is 180 Varick Street, 13th Floor, New
York, New York 10014. Que leases 3,650 square feet of office space at 180 Varick
Street, 13th Floor, New York, New York 10014, pursuant to a lease that expires
on December 31, 2002. The rent for this space is approximately $6,000 per month
for the calendar year 1999 with rent increasing annually to $6,333.33 per month
for the calendar year 2002.
Prima leases offices at 6100 Wilshire Boulevard, Suite 710, Los
Angeles, California 90048, consisting of 2,476 square feet. Prima leases the
offices pursuant to a lease that expires on January 15, 2004 at a rent of
$4,580.60 per month.
ITEM 3. LEGAL PROCEEDINGS
Prima is a party to litigation that began on January 30, 1997, and is
styled THE LONG ISLAND SAVINGS BANK F.S.B. ("LISB") V. PRIMA MANAGEMENT, PRIMA
EASTWEST MODEL MANAGEMENT, INC. KENNETH GODT, EDWARD T. STEIN AND JEFFREY DASH,
Supreme Court of the State of New York, County of Suffolk, Index No 3904-97.
LISB sued all of the defendants for approximately $502,988 based upon a demand
loan that LISB made to Godt, Stein, Dash and Prima Management and that was
allegedly guaranteed by Prima. Under the terms of the alleged guarantee, Prima
is primarily liable along with the original obligors in the event of a default.
On May 6, 1999, a Judgment was entered against the defendants in this matter,
including Prima. However, the Judgment provides that to the extent Prima is
required to pay any sums to LISB, Prima is entitled to a judgment against Edward
Stein. Prima recently obtained a General Release from Astoria Federal Savings
and Loan Association, as successor in interest by merger to LISB.
Prima is party to another litigation that began on February 12, 1997,
and is styled KENNETH GODT V. THE LONG ISLAND SAVINGS BANK F.S.B., J R
CONSULTING, INC., PEMM ACQUISITION CORPORATION AND PRIMA EASTWEST MODEL
MANAGEMENT, INC., United States District Court, Eastern District of New York,
Case No. CV-97-0756 (IS). Pemm Acquisition Corporation ("Pemm") was the wholly
owned subsidiary of JRCI that was merged into Prima on March 1, 1996 in order to
consummate JRCI'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 Pemm agreed to pay Godt's
indebtedness to LISB upon the closing of the acquisition of Prima by JRCI
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 JRCI, management believes that neither
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JRCI nor Prima has any liability to Mr. Godt in this litigation. JRCI and Prima
are vigorously defending this litigation. JRCI and Prima recently obtained a
General Release from Godt and have instructed their legal counsel to prepare the
appropriate documents to dismiss this lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Management intends to list the Company's common stock on the OTC
Bulletin Board. As of this date, the Company's common stock is not trading or
listed on any exchange.
As of June 30, 1999, the Company had 284 holders of record of its
Common Stock.
RECENT SALES OF UNREGISTERED SECURITIES
In May 1998, Diva-Florida sold 221,000 shares of its Series A
Convertible Preferred Stock at a price of $2.00 per share. Commissions of
$30,000 were paid in connection with such sales. The proceeds were applied to
working capital. Pursuant to the reorganization, which became effective in April
1999, 200,000 of these shares were exchanged for 200 shares of Series A
Convertible Preferred Stock of Diva-Delaware. The balance of 21,000 shares were
redeemed by Diva-Florida.
In February through April 1999, Diva-Delaware conducted a private
offering of 750 shares of Series A Convertible Preferred Stock at a price of
$2,000.00 per share. Diva-Delaware received $750,000 of the offering proceeds in
cash and a subscription for the balance. Commissions of $30,000 were paid in
connection with such sales. These proceeds were used to finance capital
expenditures and applied to working capital.
DIVIDENDS
The Company has not declared any cash dividends with respect to its
Common Stock during the prior two years and does not anticipate paying cash
dividends on its Common Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Except for the historical information contained herein, the matters
discussed in this item are forward looking statements involving risks and
uncertainties that may cause actual results to materially differ. Those risks
and uncertainties include but are not limited to economic,
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competitive, industry and market factors affecting the Company's operations,
markets, products, prices and other factors discussed in the Company's filings
with the SEC.
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1999
The fiscal year ended June 30, 1998 ("Fiscal 1998") was one of
consolidation at Prima and development of the newly formed Que. This had a
measure of success as shown by the results of the Company, with Prima making a
small operating profit and revenues of Que achieving management targets.
Management believes that the full potential of these subsidiaries has not yet
been realized. This could only be expected over the forthcoming years, and there
is no assurance that the full potential will be realized. The fiscal year ended
June 30, 1999 ("Fiscal 1999") was one of continued consolidation with an
emphasis on expansion at Que.
The Company incurred a loss from operations of $683,532 for Fiscal 1999
compared with a loss from operations of $407,999 for Fiscal 1998. The Company's
revenues continued to expand and were $1,813,686 in Fiscal 1999 as compared to
$1,466,121 in Fiscal 1998. However, selling, general and administrative expenses
increased at an even faster rate and were $2,497,218 in Fiscal 1999 as compared
to $1,874,120 in Fiscal 1998.
The significant increase in the Company's net loss was primarily due to
the uncollectability of a $47,819 receivable, litigation expense of $89,837 and
the settlement of some previously outstanding issues in Fiscal 1999. By
contrast, in Fiscal 1998, the overall performance of operations was improved
primarily due to the $217,238 gain on the sale of the photographic studio.
Prima continued to be successful in reducing its costs although this
was at some cost to its sales. This resulted in Prima making an operating
profit. During the year, Prima moved its office and during this disruptive
period all divisions experienced some loss in sales. Management is making every
effort to recover those sales in subsequent periods. By working very closely
with Que in New York, management expects further improvement in sales during the
forthcoming years, although there is no assurance that this will happen.
Que began operations on January 5, 1998 and the Company forecast losses
for the first few years. However the results of Que are encouraging as sales are
significantly better than was forecasted and many of the initial expenses will
not be repeated. Furthermore Que has already begun working and co-operating
closely with Prima to the benefit of both companies.
TRENDS AND UNCERTAINTIES
Prima and Que continue to seek to expand and increase their customer
base and operating revenues. In doing so it is probable that their
administrative expenses and overhead, are likely to increase in future periods.
The continuation of obtaining additional types of business and markets is
uncertain and the continued success of any of the Company's new marketing
strategies for generating revenue is uncertain.
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LIQUIDITY AND CAPITAL RESOURCES
On June 30, 1999, the Company had a working capital deficit of
$1,017,553. The business is capital intensive. The operating companies must pay
their modeling talent soon after services are rendered. While the accounts
receivable for these operating companies are generally due in 30 days, they are
usually collected within 60 to 120 days.
The Company expects that the working capital cash requirements over the
next 12 months will be generated from operations and the balance of the private
offering. However, the Company anticipates opening model agencies in additional
areas in the future. Assuming the Company does not open additional model
agencies in the next 12 months, the capital expenditures are anticipated to be
$25,000. Such expenditures will be primarily for office equipment. The Company
expects these capital expenditures to be financed through working capital.
In February through April 1999, Diva-Delaware conducted a private
offering of 750 shares of Series A Convertible Preferred Stock. Diva-Delaware
received $750,000 of the offering proceeds in cash and received a subscription
for the remaining $750,000 which is payable when the Registration Statement for
Diva-Delaware incorporating the audited financial statements for Fiscal 1999 is
filed. Diva-Delaware anticipates filing an amendment to the Registration
Statement incorporating these financial statements next month. These proceeds
will be used to finance capital expenditures and applied to working capital.
Except as described, the Company has no commitments for additional funding and
no assurance can be given that it will obtain additional funding.
YEAR 2000 COMPLIANCE
The Year 2000 issue refers to a condition in computer software where a
two-digit field rather than a four-digit field is used to distinguish a calendar
year. Unless corrected, date-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in system failures
or miscalculations causing disruptions to various activities and operations.
Such an uncorrected condition could significantly interfere with the conduct of
the Company's business, could result in disruption of the Company's operations
and could subject the Company to potentially significant legal liabilities.
In Fiscal 1999, the Company conducted an assessment of the Year 2000
issue and the potential effect it would have on the Company and its business.
The Company also prepared a formal plan for dealing with the Year 2000 issue.
The Company updated much of its existing software for Year 2000 compliance by
modifying existing internally developed software. The
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Company hired outside consultants and acquired new and upgraded third party
software packages to replace those used that could not be modified.
While the Company believes it has resolved any Year 2000 issues, the
possibility exists that the Company could inadvertently have failed to correct a
Year 2000 problem. Such problems might continue to appear throughout calendar
year 2000. While the Company can be increasingly confident, there can be no
certainty until the end of Year 2000. The Company believes the impact of such an
occurrence would be minor, as substantial Year 2000 compliant equipment
additions and upgrades have occurred in recent years. If such resolution does
not occur, the Company believes it will be able to conduct its business,
possibly at a reduced volume, using its already Year 2000 compliant server and
personal computer software until resolution occurs. Third-party suppliers or
customers who have not modified their systems to adequately address the Year
2000 issue may also affect the Company.
Year 2000 readiness has cost the Company an estimated $65,000
(including upgrades to existing systems) although this does not include the
purchase of replacement software for systems that were upgraded rather than
replaced.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements are attached to this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth certain information as of June 30, 1999,
with respect to the Directors and Executive Officers of the Company.
NAME AGE POSITION
- ---- --- --------
Peter Zachariou 38 President, Chairman of the Board and Treasurer
David Lean 53 Principal Accounting Officer, Acting Secretary
and Director
Maxo Benalal 38 Vice President and Director
Directors are elected at the annual meeting of shareholders and hold
office until the following annual meeting and until their successors are elected
and qualified. All Executive Officers serve at the discretion of the Board of
Directors.
Peter Zachariou has been President and Chairman of the Board of Diva
since April 1999. In addition, since June 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. Mr.
Zachariou was President and Chairman of the Board of JRCI, from June 1995 and
Treasurer of JRCI from July 1997 through January 2000. From June 1995 until
August 1995, Mr. Zachariou was also Secretary and Treasurer of JRCI. For at
least the preceding five years, Mr. Zachariou has been a private investor.
David Lean has been the Principal Accounting Officer, Acting Secretary
and a Director of the Company since April 1999. From August 1995 through January
2000 Mr. Lean was a Director of JRCI, from August 1998 through January 2000, Mr.
Lean was Acting Secretary of JRCI and from April 1995 through May 1997 was
Treasurer of JRCI. For at least the preceding five years, Mr. Lean has also been
a managing Director of a United Kingdom subsidiary of a Canadian mining company.
Maxo Benalal has been a Director of the Company 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.
The Company's securities are not registered under Section 12(g) of the
Exchange Act. Accordingly, the Directors and Executive Officers of the Company
are not required to file reports under Section 16(a) of that Act.
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ITEM 10. EXECUTIVE COMPENSATION
No Director or Executive Officer of the Company received any cash
compensation during the fiscal year ended June 30, 1999.
All members of the Company's Board of Directors, whether officers of
the Company or not, may receive an amount yet to be determined annually for
their participation in meetings of the Board and will be required to attend a
minimum of four meetings per fiscal year. The Company reimburses all expenses
for meeting attendance or out of pocket expenses connected directly with their
Board participation.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of December 20, 1999, by
each Director, Executive Officer and any person known to the Company to own
beneficially more than 5% of the Company's Common Stock and by all Directors and
Executive Officers of the Company as a group.
NAME AND ADDRESS SHARES OF COMMON STOCK PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNED (1)
- ------------------- ------------------ ---------
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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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Peter Zachariou, Chairman of the Board, President and Treasurer of the
Company has from time to time made cash advances to the Company. The advances
are unsecured, payable on demand and interest free. The outstanding amount of
such advances as at June 30, 1999 was $764,918.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule.
(b) Form 8-K
On August 9, 1999, the Company filed a Current Report on Form 8-K
regarding its acquisition, through reverse subsidiary merger, of Diva
Entertainment, Inc., a Florida corporation which owns Prima and Que.
The Current Report was dated April 28, 1999, the date the Agreement was
executed. The acquisition was effective April 1, 1999.
On September 28, 1999, the Company filed a Current Report on Form 8-K
regarding the
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appointment of its accountants effective June 1, 1999.
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SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the
Company caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DIVA ENTERTAINMENT, INC.
Date: February 4, 2000 By: /s/ Peter C. Zachariou
--------------------------------
Peter C. Zachariou, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Company and in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Peter C. Zachariou
- -----------------------------
PETER C. ZACHARIOU President/Principal February 4, 2000
Executive and Director
- -----------------------------
Maxo Benalal Bendrihem Director
/s/ David Lean
- -----------------------------
DAVID LEAN Principal Accounting February 4, 2000
Officer and Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS.
No annual report or proxy material has been sent to security holders
nor are such materials anticipated to be sent, with the exception of this Annual
Report on Form 10-KSB.
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DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONTENTS
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PAGE
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-3
Statements of Operations F-5
Statements of Changes in Stockholders' Deficiency F-6
Statements of Cash Flows F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-10
F-1
<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, 1999, and the related
consolidated statements of operations, changes in stockholders' deficiency and
cash flows for the years ended June 30, 1999 and 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide reasonable basis for our opinion.
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, 1999, and the results of their operations
and their cash flows for the years ended June 30, 1999 and 1998 in conformity
with generally accepted accounting principles.
Marcum & Kleigman, LLP.
Woodbury, New York
December 15, 1999
F-2
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DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1999
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ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT ASSETS
Accounts receivable, less allowance for doubtful accounts of
$157,750 $1,201,860
Due from related parties 65,280
Prepaid expenses and other current assets 71,690
Employee advances 14,629
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Total Current Assets $1,353,459
PROPERTY AND EQUIPMENT, Net 349,316
OTHER ASSETS
Goodwill, net of accumulated amortization of $159,673 558,872
Security deposits 38,793
Due from officer 3,982
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Total Other Assets 601,647
----------
TOTAL ASSETS $2,304,422
==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1999
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT LIABILITIES
Cash overdraft $ 183,045
Accounts payable, talents 569,711
Accounts payable, other 261,756
Accrued expenses and other current liabilities 161,242
Legal reserves 502,988
Due to parent, net 115,818
Due to related party 55,452
Due to officer, current 521,000
-----------
Total Current Liabilities $ 2,371,012
OTHER LIABILITIES
Due to officers, long-term 192,448
-----------
TOTAL LIABILITIES 2,563,460
COMMITMENT AND CONTINGENCY
SERIES B REDEEMABLE CONVERTIBLE PREFERRED
STOCK, $0.001 PAR VALUE, 3,000 SHARES ISSUED AND
OUTSTANDING, INCLUDING ACCRUED DIVIDEND OF $22,500 3,022,500
STOCKHOLDERS' DEFICIENCY
Series A convertible preferred stock, $.001 par value,575 shares
issued and outstanding 1,150,000
Common stock, $0.001 par value, 20,000,000 shares
authorized, 5,498,800 shares issued and outstanding 5,498
Additional paid in capital 27,925
Accumulated deficit (4,464,961)
-----------
TOTAL STOCKHOLDERS' DEFICIENCY (3,281,538)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 2,304,422
===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
1999 1998
----------- -----------
REVENUE
Management fees, net $ 1,830,011 $ 1,077,265
Production fees -- 234,478
Other 26,622 154,378
----------- -----------
TOTAL REVENUE 1,856,633 1,466,121
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,497,218 1,874,120
----------- -----------
LOSS FROM OPERATIONS (640,585) (407,999)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income -- 4,334
Interest expense (1,020) (6,129)
(Loss) gain on sale of studio (47,819) 217,238
Miscellaneous (expense) income (140,512) 81,245
----------- -----------
TOTAL OTHER (EXPENSE) INCOME (189,351) 296,688
----------- -----------
NET LOSS $ (829,936) $ (111,311)
=========== ===========
LOSS PER SHARE OF COMMON STOCK
Basic and diluted $ (.15) $ (.02)
=========== ===========
Weighted average common stock outstanding 5,498,800 5,498,800
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' DEFICIENCY
For the Years Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
-------------------------------------------------------------------------
SERIES A
--------------------------
SHARES SHARES SHARES
SUBSCRIBED ISSUED AMOUNT ISSUED AMOUNT
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE - July 1, 1997 -- -- $ -- -- $ --
April 1998 - Formation of Diva
Entertainment, Inc. -- 4,500,000 45,000 -- --
May 4, 1998 - Private Placement
Offering 221,000 -- 2,210 -- --
Pooling of interest with Prima
Eastwest Model
Management, Inc. -- -- -- -- --
Reorganization (221,000) 998,800 (41,712) 200 400,000
Unrealized loss on marketable
securities -- -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCE - June 30, 1998 (Forward) -- 5,498,800 $ 5,498 200 $ 400,000
----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
PAID-IN COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
CAPITAL LOSS DEFICIT DEFICIENCY
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE - July 1, 1997 $ -- $ -- $ -- $ --
April 1998 - Formation of Diva
Entertainment, Inc. 10,923 -- -- 55,923
May 4, 1998 - Private Placement
Offering 439,790 -- -- 442,000
Pooling of interest with Prima
Eastwest Model
Management, Inc. -- -- (3,523,714) (3,523,714)
Reorganization (400,288) -- -- (42,000)
Unrealized loss on marketable
securities -- (42,947) -- (42,947)
Net loss -- -- (111,311) (111,311)
----------- ----------- ----------- -----------
BALANCE - June 30, 1998 (Forward) $ 50,425 $ (42,947) $(3,635,025) $(3,222,049)
----------- ----------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' DEFICIENCY
For the Years Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
-----------------------------------------------------------------------
SERIES A
--------------------------
SHARES SHARES SHARES
SUBSCRIBED ISSUED AMOUNT ISSUED AMOUNT
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE - June 30, 1998 (forward) -- 5,498,800 $ 5,498 200 $ 400,000
Private placement offering of 375
shares of Series A Convertible
Preferred Stock -- -- -- 375 750,000
Realized loss on marketable
securities -- -- -- -- --
Accrued dividend on Series B
redeemable Preferred stock -- -- -- -- --
Net loss -- -- -- -- --
---------- ----------- ----------- ----------- -----------
BALANCE - June 30, 1999 -- 5,498,800 $ 5,498 575 $ 1,150,000
========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
PAID-IN COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
CAPITAL LOSS DEFICIT DEFICIENCY
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE - June 30, 1998 (forward) $ 50,425 $ (42,947) $(3,635,025) $(3,222,049)
Private placement offering of 375
shares of Series A Convertible
Preferred Stock -- -- -- 750,000
Realized loss on marketable
securities -- 42,947 -- 42,947
Accrued dividend on Series B
redeemable Preferred stock (22,500) -- -- (22,500)
Net loss -- -- (829,936) (829,936)
----------- ----------- ----------- -----------
BALANCE - June 30, 1999 $ 27,925 $ -- $(4,464,961) $(3,281,538)
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-7
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(829,936) $(111,311)
--------- ---------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 127,635 73,681
Loss (gain) on sale of studio 47,819 (217,238)
Disposal of equipment 13,076 --
Increase in accounts receivable (631,176) (362,700)
Increase in prepaid expenses and other current assets (26,603) (17,094)
Increase in security deposits (4,681) (15,301)
Increase in cash overdraft 131,702 17,605
Increase in accounts payable, talent 325,516 76,633
Increase (decrease) in accounts payable, other 38,291 (110,725)
(Decrease) increase in accrued expenses and other current
liabilities (84,198) 166,438
Increase in litigation reserves 89,837 --
--------- ---------
TOTAL ADJUSTMENTS 27,218 (388,701)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (802,718) (500,012)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (160,656) (292,628)
Proceeds from sale of studio -- 241,566
Collections on note receivable 39,820 --
Proceeds from sale of (purchase of) marketable securities, net 75,118 (75,118)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES $ (45,718) $(126,180)
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-8
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
For the Years Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
1999 1998
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances to employee $ (14,629) $ (2,033)
(Repayment of) proceeds from officers' loans, net (90,614) 263,346
Advances to parent, net (289,354) (53,460)
Proceeds from private placement offering, net 708,000 442,200
Advances from related parties 511,172 --
--------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 824,575 650,053
--------- ---------
NET (DECREASE) INCREASE IN CASH (23,681) 23,861
CASH - Beginning 23,861 --
--------- ---------
CASH - Ending $ -- $ 23,861
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 1,020 $ 6,129
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-9
<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. (formerly known as Quasar Projects Company)
("Diva-Delaware"), which is primarily a holding company, was incorporated
in the State of Delaware in December 1992 and is a
majority-owned subsidiary of J R Consulting, Inc. ("JRCI" or the
"Parent") which is also a reporting company under the Securities Exchange
Act of 1934.
On April 3, 1998, JRCI formed Diva Entertainment, Inc., a Florida
corporation and holding company ("Diva-Florida"). On May 1, 1998,
Diva-Florida 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.
On April 28, 1999, but effective April 1, 1999, Diva-Delaware, a public
shell, acquired JRCI's 95% equity interest in Diva-Florida in exchange
for 4,225,000 shares of Diva-Delaware's common stock (the "Acquisition").
This Acquisition, which has been treated as a capital transaction in
substance, rather than a business combination, was deemed a "reverse
acquisition" for accounting purposes. Accordingly, Diva-Florida was the
accounting acquirer and the historical financial statements prior to
April 1, 1999 were those of Diva-Florida. In the accompanying financial
statements, the capital structure and earnings (losses) per share of
Diva-Florida have been retroactively restated to reflect the Acquisition
as if it occurred at the beginning of the period. In connection with the
above Acquisition, Diva-Delaware changed its name from Quasar Projects
Company to Diva Entertainment, Inc.
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.
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-Delaware, Diva-Florida and Diva-Florida's wholly owned subsidiaries
Prima and Que, collectively referred to as the "Company". All significant
inter-company transactions have been eliminated in consolidation.
F-10
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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.
INCOME TAXES
Deferred income tax assets and liabilities are computed annually for
differences between the consolidated financial statement and tax basis of
assets and liabilities that will result in taxable or deductible amounts
in the future based on enacted laws and rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets
to the amount expected to be realized.
RECLASSIFICATIONS
Certain accounts in the prior year consolidated financial statements have
been reclassified for comparative purposes to conform with the
presentation in the current year consolidated financial statements. These
reclassifications have no effect on the previously reported income.
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 are a reasonable
estimate of fair value.
F-11
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
IMPAIRMENT OF LONG-LIVED ASSETS
Property and equipment is reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected undiscounted cash flows is less
than the carrying value of the related asset or group of assets, a loss
is recognized for the difference between the fair value and carrying
value of the asset or group assets.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". SFAS No. 123 prescribes accounting and
reporting standards for all stock-based compensation plans, including
employee stock options, restricted stock, employee stock purchase plans
and stock appreciation rights. SFAS No. 123 requires compensation expense
to be recorded (i) using the new fair value method or (ii) using the
existing accounting rules prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair
value method. The Company adopted this standard in fiscal 1999 and the
implementation of this standard did not have any impact on its financial
statements.
NET EARNINGS PER SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings per Share ("SFAS No. 128"). SFAS No. 128
eliminates the presentation of primary and fully diluted earnings per
share ("EPS") and requires presentation of basic and diluted EPS. Basic
EPS is computed by dividing income (loss) available to common
stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS is based on the weighted-average number of
shares of common stock outstanding for the period and common stock
equivalents outstanding at the end of the period. Common stock
equivalents have been excluded from the calculation of weighted-average
shares for purposes of calculating diluted earnings per share for 1999
and 1998, as such inclusion is anti-dilutive.
COMPREHENSIVE INCOME
In 1997, the FASB issued the Statement of Financial Accounting Standards
No. "130, Reporting Comprehensive Income" ("SFAS No. 130"), establishes
standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income is defined to
include all changes in equity, except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. The Company adopted this standard in fiscal 1999
and the implementation of this standard did not have any impact on its
financial statements.
F-12
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
REPORTING OF SEGMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," effective for fiscal years
beginning after December 15, 1997, with reclassification of earlier
periods required for comparative purposes. SFAS No. 131 establishes the
criteria for determining an operating segment and establishes the
disclosure requirements for reporting information about operating
segments. The Company adopted this standard in fiscal 1999 and the
adoption of this standard has no impact on the Company's results of
operations or financial condition.
PENSION AND OTHER BENEFITS
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, Employers'
Disclosures about Pensions and Other Post-retirement Benefits ("SFAS No.
132"), which standardizes the disclosure requirements for pensions and
other post-retirement benefits. The Company adopted this standard in
fiscal 1999 and the implementation of this standard did not have any
impact on its financial statements.
ACCOUNTING DEVELOPMENTS
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("ASEC of AICPA")
issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use", effective
for fiscal years beginning after December 15, 1998. SOP No. 98-1 requires
that certain costs of computer software developed or obtained for
internal use be continued capitalized and amortized over the useful life
of the related software. The Company does not expect that the adoption of
this standard will have a material impact on its financial statements.
In April 1998, the ASEC of AICPA issued SOP No. 98-5, "Reporting on the
Costs of Start-up Activities", and effective for fiscal years beginning
after December 15, 1998. SOP 98-5 requires the costs of start-up
activities and organization costs to be expensed as incurred. The Company
does not expect that the adoption of this standard will have a material
impact on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective for fiscal years beginning
after June 15, 1999, which has been deferred to June 30, 2000 by
publishing of SFAS No. 137. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred
to as derivatives), and for hedging activities. This Statement requires
that an entity recognize all derivatives as either assets or liabilities
in the statement of financial condition and measure those instruments at
fair value. The accounting for changes in the fair value of a derivative
instrument depends on its intended use and the resulting designation. The
Company does not expect that the adoption of this standard will have a
material impact on its financial statements.
F-13
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - MARKETABLE SECURITIES, MARKET VALUE
In accordance with FASB #115, the Company is required to classify each of
its 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 as accumulated other comprehensive income. Gains
and losses on the sale of securities are recognized on a specific
identification basis. At June 30, 1999 and 1998, the Company had
marketable securities of $-- and $32,171, respectively, with an
unrealized loss of $-- and $42,947, respectively. The Company also had
realized losses in 1999 of $42,947 and realized gains in 1998 of $75,180,
resulting from sales of securities during the years.
NOTE 3 - 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 note receivable with
interest at 8% per annum. At June 30, 1999, the Company forgave the
outstanding balance of $47,819 (see Note 9).
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30, 1999:
ESTIMATED
AMOUNT USEFUL LIFE
---------------------------
Office equipment and fixtures $ 220,687 5-7 years
Leasehold improvements 225,420 5 years
---------
446,107
Less: accumulated depreciation
and amortization 96,791
---------
Property and Equipment, net $ 349,316
=========
Depreciation and amortization expense for the years ended June 30, 1999
and 1998 was $79,732 and $25,778, respectively.
NOTE 5 - 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 years ended June 30, 1999 and 1998 amounted
to $47,903 for each year.
F-14
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - DUE TO OFFICER/OFFICERS
Due to officer in the amount of $521,000 represents advances made by an
officer of the Company, which are non-interest bearing and due on demand.
Due to officers represents advances made by two officers of the Company
which are non-interest bearing and have no definite repayment terms.
NOTE 7 - DUE TO PARENT, NET
Due to Parent represents net advances made to the Company by the Parent,
which are non-interest bearing and are due on demand.
NOTE 8 - INCOME TAXES
No provision has been made in the accompanying consolidated financial
statements for income tax expense as a result of the current operating
loss and net operating loss ("NOL") carryforwards.
Differences between income tax benefits computed at the Federal statutory
rate (34%) and reported income taxes for 1999 and 1998 are primarily
attributable to the valuation allowance for the NOL and other permanent
differences.
As of June 30, 1999 the Company's total deferred tax assets amounted to
approximately $1,669,000, which relate primarily to NOL carryforwards,
and the tax effect of differences in financial and income tax reporting
for amortization methods, and the related valuation allowance. Management
concluded a full valuation allowance on the deferred tax assets was
appropriate due to the Company's failure to file its federal and state
tax returns.
As of June 30, 1999, the Company estimated the available NOL
carryforwards to be approximately $2,162,000, subject to certain
limitations, which will expire on various dates through 2020. The amount
and utilization of the NOL carryforwards cannot be determined at June 30,
1999 based upon the information available.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LEASING ARRANGEMENTS
The Company leases its New York office and Los Angeles office through
five-year non-cancelable lease agreements expiring in December 2002 and
December 2003, respectively.
Future minimum rental commitments under the above noncancellable
operating leases as of June 30, 1999 are as follows:
F-15
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9 - COMMITMENTS AND CONTINGENCIES, continued
FOR THE YEAR
ENDING JUNE 30, AMOUNT
--------------- ---------
2000 $ 130,903
2001 133,021
2002 135,199
2003 98,305
2004 27,929
---------
Total $ 525,357
=========
Rent expense for the years ended June 30, 1999 and 1998 was $98,699 and
$75,013, respectively.
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, 1999 amounted to $784,194 through
October 2007. Prima is contingently liable for these commitments in case
the buyer is in default of such payments.
LITIGATION
Prima is named as a defendant in an action filed by a bank in February
1997. The bank is seeking to enforce the terms of certain promissory
notes allegedly guaranteed by Prima and collateralized by substantially
all assets of Prima. At the time of the commencement of the action, the
balance was $502,988 together with interest thereon from January 30,
1997. On May 6, 1999 a judgment was entered against the defendants in
this matter, including Prima. However, the judgment provides that to the
extent Prima is required to pay any sums to the bank, Prima is entitled
to a judgment against Edward Stein, a co-defendant. Since Prima cannot
determine whether the co-defendant has sufficient assets to reimburse
Prima for any potential loss, Prima has established a reserve of $502,988
(see Note 12).
LATE FILING
The Company was required to file an amendment to a Form 8-K filed in
connection with the Acquisition within 75 days after the Acquisition (see
Note1). However, the Company has failed to file this Form timely. The
Company intends to file this Form in the near future. Management believes
that the late filing will not have a material adverse effect on the
financial position of the Company.
NOTE 10 - PREFERRED STOCK
The Company has authorized 1,000,000 shares of $0.001 par value preferred
stock. At June 30, 1999, 575 shares and 3,000 shares of Series A and
Series B preferred stock are issued and outstanding, respectively.
F-16
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - PREFERRED STOCK, continued
SERIES A CONVERTIBLE PREFERRED STOCK
In May 1998, Diva-Florida commenced a private placement offering of its
common stock, wherein it proposed to sell up to 500,000 shares of common
stock at a price of $2.00 per share. As of June 30, 1998, 221,000 shares
of common stock were sold for $442,000. These shares were subscribed and
not yet formally issued at April 28, 1999. In connection with the
Acquisition (see Note 1), the subscribers of the 200,000 Diva-Florida's
shares converted their subscribed shares to 200 shares of Diva-Delaware's
Series A Convertible Preferred Stock (the "Series A Preferred").
Diva-Florida returned $42,000 to the subscriber who held 21,000
subscribed shares of Diva-Florida's common stock. In connection with the
conversion, Diva-Delaware authorized the designation of 1,721 shares of
the Series A Preferred. The Company incurred $30,000 of placement agent
fees in connection with this offering.
Diva-Delaware immediately commenced a private placement offering of its
Series A Preferred after the Acquisition (see Note 1), wherein it
proposed to sell up to 750 shares of Series A Preferred at a price of
$2,000 per share. At June 30, 1999, 375 shares of the Series A Preferred
were sold for $750,000, which was received in cash and 375 shares were
subscribed for $750,000. The balance is payable when Diva-Delaware files
an amendment to the registration statement for the shares of its common
stock underlying the Series A Preferred which amendment incorporates the
audited financial statements for the fiscal year ended June 30, 1999. The
Company incurred $30,000 of placement agent fees in connection with this
offering.
The Series A Preferred holders are entitled to receive cumulative
preferential dividends at $60 per share per annum, payable annually on
each anniversary date of issuance. In the option of the Diva-Delaware,
such dividend may be paid in cash or in shares of Diva-Delaware's common
stock valued at the Conversion Rate, as defined. As of June 30, 1999,
total cumulated dividends amounted to $8,625. In addition, the Series A
Preferred are subject to certain conversion, redemption, and liquidation
provisions, as defined in the Certificate of Designation.
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK
In connection with the Acquisition (see Note 1), JRCI converted
$3,000,000 of debt, owed to it by Diva-Florida and Subsidiaries, into
3,000 shares of Series B Redeemable Convertible Preferred Stock (the
"Series B Preferred") of Diva-Delaware. In connection with the
conversion, Diva-Delaware authorized the designation of 3,000 shares of
Series B Preferred.
F-17
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - PREFERRED STOCK, continued
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK, continued
The Series B Preferred holders are entitled to receive cumulative
preferential dividends at $30 per share per annum, payable annually on
each anniversary date of issuance. In the option of the Diva-Delaware,
such dividend may be paid in cash or in shares of Diva-Delaware's common
stock valued at the Conversion Rate, as defined. As of June 30, 1999,
total cumulated dividends amounted to $22,500. In addition, the Series B
Preferred are subject to certain conversion, redemption, and liquidation
provisions, as defined in the Certificate of Designation.
OPTION AGREEMENT
JRCI and Diva-Delaware also entered into an Option Agreement giving JRCI
the option to purchase additional shares of Diva-Delaware's Common stock
at its par value of $.001 per share in order for JRCI to maintain JRCI's
ownership of the outstanding shares of Diva-Delaware's common stock at no
less than 65%. The option expires when all of the shares of
Diva-Delaware's Series A Preferred have been converted into shares of
Diva-Delaware's common stock
NOTE 11 - SEGMENT INFORMATION
The Company operated in two geographic segments: New York ("NY") and
California ("CA") (see Note 1). A summary of the Company's operations by
geographic segments for the years ended June 30, 1999 and 1998, is as
follows:
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------
NY CA CORPORATION TOTAL
--------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Revenue $ 934,651 $ 921,982 $1,856,633
Operating income (loss) (567,762) (233,797) $ (28,379) (829,938)
Identifiable assets 1,132,096 1,320,154 (147,828) 2,304,422
Capital expenditures 67,192 93,464 160,656
Depreciation and amortization 66,864 60,771 127,635
1998
--------------------------------------------------------------------
NY CA CORPORATION TOTAL
--------------- ----------------- ---------------- -----------------
Revenue $ 278,912 $1,187,209 $1,466,121
Operating income (loss) (285,058) 242,054 $ (68,307) (111,311)
Identifiable assets 683,232 1,176,857 (116,292) 1,743,797
Capital expenditures 286,810 5,818 292,628
Depreciation and amortization 16,451 57,230 73,681
</TABLE>
F-18
<PAGE>
DIVA ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12 - SUBSEQUENT EVENT (UNAUDITED)
CORPORATE COMBINATION AGREEMENT
On October 28, 1999, JRCI entered into a corporate combination agreement
(the "Agreement") with Providential Securities, Inc. ("Providential"),
whereby JRCI will acquire 20,000,000 shares of the issued and outstanding
capital stock of Providential in exchange for 30,000,000 shares of the
Parent's common stock (the "JRCI Shares"). Under the Agreement, JRCI will
effect a 1-for-2 reverse stock split, as described in the Agreement,
prior to the consummation of this transaction. It is intended that this
transaction shall qualify as a transaction in securities exempt from
registration or qualification under the Securities Act of 1933, as
amended. The JRCI Shares will be restricted against resale pursuant to
the provisions of Federal and state securities laws. The transaction was
consummated on January 14, 2000.
In addition, as a covenant under the Agreement, JRCI has reached an
agreement to sell to Havilland Limited, a related entity, all of the
shares of Diva-Delaware owned by JRCI as well as to assign all of its
rights, title and interest in an Option Agreement (see Note 10) to
Havilland Limited. Consummation of the sale is subject to certain
conditions and no assurance can be given that such conditions will be met
and the transaction will be consummated.
LITIGATION SETTLEMENT
On October 29, 1999, the Company entered into an amended and restated
settlement agreement with Edward Stein (see Note 9), whereby Edward Stein
agreed to pay the bank the amount necessary to settle the claim and
obtain a Satisfaction of Judgment. In December 1999, Edward Stein paid
off the obligation to the bank. Subsequent to the payment of the
obligation, the bank released the Company from any obligation in
connection with the claim.
F-19
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
21.2 List of subsidiaries.
27.1 Financial Data Schedule.
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
Diva Entertainment, Inc. (a Florida corporation)
Prima Eastwest Model Management, Inc. (a California corporation)
Que Model Management, Inc. (a New York corporation)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 919603
<NAME> DIVA ENTERTAINMENT, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,359,610
<ALLOWANCES> 157,750
<INVENTORY> 0
<CURRENT-ASSETS> 1,353,459
<PP&E> 349,316
<DEPRECIATION> 159,673
<TOTAL-ASSETS> 2,304,422
<CURRENT-LIABILITIES> 2,371,012
<BONDS> 0
0
4,150,000
<COMMON> 5,498
<OTHER-SE> (4,414,536)
<TOTAL-LIABILITY-AND-EQUITY> 2,304,422
<SALES> 0
<TOTAL-REVENUES> 1,856,633
<CGS> 0
<TOTAL-COSTS> 2,497,218
<OTHER-EXPENSES> 188,331
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,020
<INCOME-PRETAX> (829,936)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (829,936)
<EPS-BASIC> (.15)
<EPS-DILUTED> (.15)
</TABLE>
