SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2002
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
MSM JEWELRY CORP.
(Exact name of small business issuer as specified in its charter)
NEVADA 65-0675444
(State of other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.)
131 West 35th Street
New York, New York 10001
(Address of principal executive offices)
(212) 736-0880
(Issuer's Telephone Number, Including Area Code)
American Jewelry Corp.
(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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: Common Stock, $.01 par value per share
- - 10,518,985 shares outstanding as of June 30, 2002; Series A Preferred Stock,
$.01 par value per share - 200,000 shares outstanding as of June 30, 2002.
MSM JEWELRY CORP.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2002
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements.
Index to Financial Statements F-1
Consolidated Balance Sheets as of June 30, F-2
2002
Consolidated Statement of Operations for the
Three Months ended June 30, 2002 and June
30, 2001, and for the Six Months ended June
30, 2002 and June 30, 2001. F-3
Consolidated Condensed Statements of Cash
Flows for the Six Months ended June 30, 2002
and June 30, 2001 F-4
Notes to Financial Statements F-5
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings. 9
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security 9
Holders
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K. 9
MSM JEWELRY CORP.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheet . . . . . . . . F-2
Consolidated Statements of Operations. . . F-3
Consolidated Statements of Cash Flows. . . F-4
Notes of Consolidated Financial Statements F-5
F-1
MSM JEWELRY CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, 2002
ASSETS
CURRENT ASSETS:
Cash $ 477
Accounts receivable, net 272,116
Prepaid Expense 30,365
Inventory 3,552,215
----------
TOTAL CURRENT ASSETS 3,855,173
PROPERTY AND EQUIPMENT, net 275,687
OTHER ASSETS:
Other 261,450
----------
$ 4,392,310
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,531,813
Convertible debentures 125,893
----------
TOTAL CURRENT LIABILITIES 1,657,706
Loans payable 320,525
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 5,000,000,000 shares
authorized, 32,479,681 shares issued and outstanding 32,480
Preferred stock, $.01 par value 5,000,000 shares
authorized, 200,000 Series A shares issued and
outstanding 200
Treasury stock (10,428)
Additional paid-in capital 61,165,220
Accumulated deficit (58,773,393)
TOTAL STOCKHOLDERS' EQUITY 2,414,079
$ 4,392,310
See notes to consolidated financial statements
F-2
MSM JEWELRY CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended June 30 Six Months Ended June 30,
------------ ------------ ------------ ------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales $ 309,346 $ 2,112,283 $ 553,190 $ 3,487,964
Cost of goods sold 231,063 1,513,289 425,191 2,625,439
Gross profit 78,283 598,994 127,999 862,525
Non cash compensation expense - 225,000 - 225,000
Selling, general and administrative 130,759 592,718 826,414 1,215,862
Stock compensation 2,479,897 2,443,197 7,528,358 2,657,741
Income (loss) from operations (2,532,373) (2,661,921) (8,226,773) (3,236,078)
------------ ------------ ------------ ------------
Interest expense - 43,529 - 61,369
Net income (loss) $(2,700,533) (2,700,533) $(8,226,773) $(3,292,530)
============ ============ ============ ============
Basic and diluted net income (loss) per share
Net income (loss) per share $ (1.10) $ (0.69) $ (6.54) $ (1.32)
============ ============ ============ ============
-------------------------------------------------------
Weighted average common shares outstanding 2,312,407 3,916,554 1,258,623 2,506,185 *
============ ============ ============ ============
-------------------------------------------------------
* Prior periods share restated 1:7000 reverse split.
See notes to consolidated financial statements
F-3
STATEMENT OF CASH FLOWS
MSM JEWELRY CORP.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES :
Net loss $ (8,226,773) $(3,292,530)
------------- ------------
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 67,500 65,480
Amortization 37,500 37,500
Officers' compensation 225,000
Fee and interest on convertible debentures 46,286
Interest expense on conversion benefit 7,528,358 2,657,741
Change in assets and liabilities;
Increase in accounts receivable 653,935 501,714
Increase (Decrease) in inventories (200,000) 500,000
Decrease in other assets (11,545) (33,626)
Increase in accounts payable and accrued expenses 226,180 80,097
------------- ------------
Total adjustments 8,301,928 4,080,192
------------- ------------
Net cash provided by operating activities 75,155 782,745
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES :
Acquisition of property and equipment - -
CASH FLOWS FROM FINANCING ACTIVITIES: -
Proceeds from convertible debentures - 600,000
Redemption of treasury stock - 10,428)
Repayment to stockholders ( 70,009) (1,446,847)
------------- ------------
Net cash used in (provided by) by financing activities ( 70,009) ( 857,275)
------------- ------------
Net increase (decrease) in cash 5,146 (74,530)
Cash - beginning of year ( 4,669) 99,308
------------- ------------
Cash - end of year $ 477 $ 24,778
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION :
Interest paid $ - $ -
============= ============
NON-CASH FINANICING AND INVESTING ACTIVITIES:
Conversion of debentures $ 127,937 $ 723,160
============= ============
See notes to consolidated financial statements
F-4
MSM JEWELRY CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed financial statements of MSM Jewelry Corp., formerly
known as American Jewelry Corp., 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 six-month period ended June 30, 2002 are not
necessarily indicative of the results to be expected for the year ended December
31, 2002. The condensed interim financial statements should be read in
conjunction with the audited financial statements and notes, contained in the
Form 10-KSB filed on April 19, 2002.
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.
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 a status conference scheduled for November
26, 2002, in view of the fact that motion practice has not begun and discovery
is ongoing, it is currently anticipated that the matter will not be resolved
before the latter part of 2003. It is 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 50% of the
$6,000,000.00 in damages sought by the receiver is susceptible to dismissal by
motion for summary judgment prior to completion of discovery and significantly
before trial.
F-5
4. COMMON STOCK
On June 1, 2002 the Company elected to effect a 1:7000 reverse stock split of
its common stock. Concurrent with the reverse split, the Company's ticker symbol
changed to AMJW (OTC BB). On July 1, 2002 the Company changed its name to MSM
Jewelry Corp. The Company's ticker symbol was changed accordingly to MSMJ (OTC
BB).
F-6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX-MONTH AND THREE MONTH PERIODS ENDED JUNE 30, 2002 COMPARED TO SIX-MONTH AND
THREE MONTHS PERIODS ENDED JUNE 30, 2001
Net sales amounted to $553,190 for the six-month period ended June 30,
2002, compared to $3,487,964 a decrease of $2,934,774 or 84% from the six-month
period ended June 30, 2001. Net sales for the three-month period ended June 30,
2002 were $309,346 compared to $2,112,283 for the same period in 2001, a
decrease of 85%. The decline in sales is due to a slow down in the economy
during the fourth quarter of 2001 and the beginning of 2002, which particularly
affected the jewelry industry and delays in payments for goods shipped.
Gross profit decreased by $734,526 or 85%, to $127,999 for the six-month period
ended June 30, 2002 from $862,525 for the six-month period ended June 30, 2001.
Gross profit for the three-month period ended June 30, 2002 decreased by
$520,711 to $ 78,283 in 2002 from $598,994 for the same period in 2001. Gross
profit, estimated by management for interim periods, was decreased to 23% for
the six-month period ended June 30, 2002 from 25% for the six-month period ended
June 30, 2001. This reduction is not deemed material and is subject to
adjustments in later periods.
Selling, General and Administrative expenses decreased by $389,448, or 32% to
$826,414 for the six-month period ended June 30, 2002, from $1,215,862 or 35%
of net revenues for the six-month period ended June 30, 2001. Selling, General
and Administrative expenses decreased by $461,959, to $130,759 for the
three-month period ended June 30, 2002, from $592,718 or 22% of net revenues for
the three-month period ended June 30, 2001. The decrease in expenses was due to
decrease in sales.
Interest non-cash increased for the six-month period ended June 30, 2002 to
$7,528,358 from $2,657,741 for the six-month period ended June 31, 2001.
Interest non-cash increased for the three-month period ended June 30, 2002 to
$2,479,897 from $2,443,197 for the three-month period ended June 31, 2001. The
increase is 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 six months ended June 30, 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 $6,031,470 to $ 2,323,360 at June 30, 2002, from
$8,354,830 at June 30, 2001.
7
The Company's operating activities generated cash in the amount of $ 75,155 for
the six month period ended June 30, 2002 as compared to $ 782,745 for the same
period in 2001. There were no investing activities in 2002. In the six months
ended June 30, 2001 the Company acquired no property or equipment.
The Company used net cash in financing activities in the amount of $70,009
during the six month period ended June 30, 2002, as compared to $857,275 during
the six month period ended June 30, 2001. The principal use of cash in financing
activities in 2002 was repayment of debt and advances to stockholders.
8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
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
Exhibit No. Description
99 Certification Pursuant to Section 906
of Sarbanes-Oxley Act of 2002
b. Reports on Form 8-K.
None
9
Signatures
Pursuant to the requirements of Section 13 or 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: September 11, 2002
MSM Jewelry Corp.
By: /s/ Isaac Nussen
-----------------------------
Name: Isaac Nussen
Title: President and Chief
Executive Officer