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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2002
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________________ to __________________
Commission File Number: 0-28663
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AMERICAN JEWELRY CORP.
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(Exact name of small business issuer as specified in its charter)
NEVADA 65-0675444
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(State or other jurisdiction or (I.R.S. Employer Identification No)
incorporation or organization)
131 West 35th Street, New York, New York 10001
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(Address of principal executive offices) (Zip Code)
212-736-0880
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(Issuer's telephone number)
(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 during the past 12 months (or for such
shorter period) that the issuer was required to file such reports, and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO
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American Jewelry Corp.
Form 10-QSB
For the Quarter ended March 31, 2002
Part I. Financial Information Page
Item 1. Consolidated Financial Statements.
Balance sheet as of March 31, 2002 F-1
Statements of Operations for the Three Months ended
March 31, 2002 and March 31, 2001 F-2
Statements of cash flows for the three months ended
March 31, 2002 and March 31, 2001. F-3
Notes of financial statements. F-4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. F-5
Part II. Other Information
Item 1. Legal Proceedings. 3
Item 2. Changes in Securities and Use of proceeds. 3
Item 3. Defaults upon Senior Securities. 3
Item 4. Submission of Matters to a Vote of Security Holders. 3
Item 5. Other Information. 3
Item 6. Exhibits and Reports on Form 8-K 3
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BALANCE SHEET
AMERICAN JEWELRY CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 2002
(Unaudited)
<Table>
<Caption>
ASSETS
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CURRENT ASSETS:
Cash $ 329
Accounts receivable-net 372,105
Inventories 3,432,215
Prepaid expenses 23,785
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TOTAL CURRENT ASSETS 3,828,434
PROPERTY AND EQUIPMENT, net 309,437
OTHER ASSETS:
Intangible assets 279,870
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$ 4,417,741
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Bank Overdraft $ 7,700
Accounts payable and accrued expenses 1,417,568
Convertible debentures 161,203
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TOTAL CURRENT LIABILITIES 1,586,471
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DUE TO STOCKHOLDERS 400,025
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STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value - 5,000,000 shares authorized, 200,000
Series A shares issued and outstanding 200
Common Stock, $.01 par value - 5,000,000,000 shares authorized,
3,782,211,040 shares issued and outstanding 3,789,211
Additional paid-in capital 54,893,282
Treasury Stock at cost, 45,000 shares (10,428)
Accumulated deficit (56,241,020)
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TOTAL STOCKHOLDERS' EQUITY 2,431,245
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$ 4,417,741
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</Table>
See notes to consolidated financial statements
F-1
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AMERICAN JEWELRY CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<Table>
<Caption>
Three Months Ended
March 31,
2002 2001
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Net sales $ 243,844 $ 1,375,681
Cost of goods sold 194,128 1,112,150
Gross profit 49,716 263,531
Selling, general and administrative expenses 695,655 323,144
(645,939) (359,613)
Interest expense - non-cash 5,048,461 232,384
Net income (loss) $ (5,694,400) $ (591,997)
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Basic and diluted net income (loss) per common share: $ (0.00) $ (0.00)
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Weighted average common shares outstanding 1,351,911,520 323,867,559
=============== ===============
</Table>
See notes to consolidated financial statements
F-2
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AMERICAN JEWELRY CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<Table>
<Caption>
Three Months Ended
March 31,
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES :
Net Income (loss) $(5,694,400) $ (591,997)
Adjustment to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 52,500 51,490
Officers' compensations contributed to capital -- 112,500
Interest expenses on conversion benefit 5,048,461 212,384
Accounts receivable 553,946 509,399
Inventories (80,000) 267,860
Other assets (4,635) (1,257)
Accounts payable and accrued expenses 111,937 76,213
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Net cash provided by (used in) operating activities (12,191) 636,592
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible debentures -- 100,000
Repayment of loan payable -- (833,871)
Advances from stockholders 9,491 --
Increase in bank overdraft 2,700 --
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Net cash (used in) provided by financing activities 12,191 (733,871)
Net increase in cash -- (97,279)
Cash - beginning of period 329 99,308
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Cash - end of period $ 329 $ 2,029
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NON-CASH FINANICING AND INVESTING ACTIVITIES:
Issuance of stock for settlement of debt $ 92,627 $ 52,160
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</Table>
See notes to consolidated financial statements
F-3
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American Jewelry Corp
and Subsidiaries
Notes to Consolidated Financial Statements
1. BASIS OR PRESENTATION "GOING CONCERN"
The accompanying condensed financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with 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 (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The results of operations for the three
month period ended March 31, 2002 are not necessarily indicative of the results
to be expected for the year ended December 31, 2002.
The company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern, which contemplated the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has incurred significant losses resulting in an
accumulated deficit at March 31, 2002 of approximately $56 million. The Company
continues to be dependent on continued financing from investors to sustain its
activities. There is no assurance that such financing will be available. These
factors raise substantial doubt about the Company's ability to continue as a
going concern.
2. STOCKHOLDERS' EQUITY
In April 2002, the Company increased its number of authorized shares of common
stock, par value $0.01 to 5 billion shares.The financial statements reflect this
transaction.
During the three months ended March 31, 2002, the Company issued 3,439,272,782
common shares upon conversion of debentures payable of $92,627.
3. LITIGATION
A pleading denominated as a "Petition for delivery of property not in possession
of defendant Lyle Pfeffer" ("Petition") was filed in the Supreme Court of the
State of New York, County of Rockland, on or about January 17, 2001, by the
receiver for the national heritage life insurance company ("NHL"). The petition
alleges various causes of action, which, in summary, collectively allege that,
in connection with a New Jersey real estate transaction that occurred in the
later part of 1993, Jarnow Corporation, a subsidiary of the Company, was the
recipient of certain sums of money that were initially fraudulently obtained (by
a third party) from NHL. The Petition seeks damages in the amount of
$6,200,000,00. The Company filed an answer on March 16, 2001, denying the
allegations set forth in the petition.
Management is vigorously contesting the allegations set forth in the Petition,
and believes that these allegations are without merit. While the court has set
some discovery target dates, and has scheduled a conference for June 19, 2002,
in view of the fact that motion practice has not begun and discovery is still at
its incipient stages, it is highly likely that this matter will require several
F-4
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extensions of these deadlines pushing the matter over to 2003. Accordingly, at
this time, it is too premature to evaluate the likelihood of an unfavorable
outcome in the event this matter should go to trial or the likelihood of
settlement prior to trial. The foregoing notwithstanding, management and the
principals are of the belief that at least fifty percent of the six million
dollars in damages sought by the receiver is susceptible to dismissal by motion
for summary judgment prior to completion of discovery and significantly before
trial.
4. SUBSEQUENT EVENT
In May 2002, the Company signed a definitive term sheet with a financing
group pursuant to which it acquired a 50.1% membership interest in LT Jewelry
LLC, a Delaware limited liability company ("LT Jewelry"). LT Jewelry will be
engaged in the business of supplying gold jewelry products to companies for
wholesale and retail sales.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Three month period ended March 31, 2002 compared to three month period ended
March 31, 2002.
Net sales amounted to approximately $244,000 for the three month period ended
March 31, 2002 compared to approximately $1,376,000, a decrease of $1,132,000 or
82%, from the three month period ended March 31, 2001.The decline in sales is
due to a slow down in the economy during 2001 and the beginning of 2002, which
particularly affected the jewelry industry.
Gross profit decreased by $214,000, or 81%, to approximately $50,000 for the
three month period ended March 31, 2002 from approximately $264,000 for the
three month period ended March 31, 2001. Gross profit as a percentage of net
sales increased to 20% for the three month period ended March 31, 2002 from 19%
for the three month period ended March 31, 2001.
Selling general and administrative expenses increased by $73,000, or 12%, to
approximately $696,000, or 285% of net sales, for the three month period ended
March 31, 2002, from approximately $323,000 or 45% of net revenues for the three
month period ended March 31, 2001. The increase in expenses was not
proportionate to decrease in sales because fixed overhead costs do not fluctuate
with changes in sales.
Interest non-cash increased for the period ended March 31, 2002 to approximately
$5,049,000 from approximately $233,000 for the three month period ended March
31, 2001 due to imputed interest on convertible debentures, beneficial
convertible features and a conversion inducement expense.
LIQUIDITY AND CAPITAL RESOURCES
Historically the Company financed operations principally through collections of
accounts receivable, loans from financing institutions, issuance of stock and
advances from officers. In the three month period ended March 31, 2002, the
company financed operations from proceeds from sales. We believe the company
will be able to finance future operations from cash generated from operations.
Working capital decreased by approximately $5,102,000 to approximately
$2,242,000 at March 31, 2002, from $7,344,000 at March 31, 2001.
F-5
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The company's operating activities used cash in the amount of approximately
$12,000 for the three month period ended March 31, 2002 as compared to
generation of cash of approximatley $637,000 for the same period in 2001. There
were no investing activities for these periods.
The company generated net cash from financing activities in the amount of
approximately $12,000 during the three month period ended March 31, 2002, as
compared to use of cash of approximately $734,000 during the three month period
ended March 31, 2001. The principal use of cash for financing activities for the
three month period ended March 31, 2001 was repayment of debt to stockholders.
F-6
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Incorporated by reference herein to the Company's Form 10-KSB
for the fiscal year ended December 31, 2001 as filed with the
Securities and Exchange Commission on April 19, 2002.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None.
b. Reports on Form 8-K.
Current Report on Form 8-K filed with the Securities and Exchange
Commission on March 7, 2002 under Item 5, Other Events.
F-3
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SIGNATURES
Pursuant to the requirements of Section 13 of 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date June 4, 2002
American Jewelry Corp
By: /s/ Isaac Nussen
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Name: Isaac Nussen
Title: President and Chief
Executive Officer
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