UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT No. 1
TO
FORM 10-QSB/A
Quarterly Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2005
Commission File No. 000-51178
PRIMA EASTWEST MODEL MANAGEMENT, INC.
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 95-4254924
------------------------------ -------------------------
(State or other jurisdiction of (I.R.S. Empl. Ident. No.)
incorporation or organization)
8618 W. 3rd Avenue
Los Angeles, California
90048
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(Address of principal executive offices)
(310) 396-1691
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(Issuer's telephone number)
The number of shares outstanding of each of the issuer's classes of
common equity, as of May 10, 2005 are as follows:
Class of Securities Shares Outstanding
-------------------------- -------------------------------
Common Stock, $0.001 par value 137,322
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
Item 1. FINANCIAL STATEMENTS
PRIMA EASTWEST MODEL MANAGEMENT, INC.
BALANCE SHEETS
March 31
2005
(unaudited)
-----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ --
Accounts receivable, net of allowance for bad debts of $32,000 106,416
Prepaid expenses and other current assets 15,060
TOTAL CURRENT ASSETS 121,476
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION AND AMORTIZATION 6,061
SECURITY DEPOSITS 3,501
TOTAL ASSETS $ 131,038
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable - talent $ 222,991
- other 8,042
Accrued expenses 8,392
Due to related party 359,756
TOTAL CURRENT LIABILITIES 599,181
OTHER LIABILITIES
Due to officer 403,620
TOTAL OTHER LIABILITIES 403,620
STOCKHOLDERS' DEFICIENCY
Common stock (no par value, 1,000,000 Shares authorized,
137,322 Shares issued and outstanding) 3,075,364
Accumulated deficit (3,947,127)
TOTAL STOCKHOLDERS' DEFICIENCY (871,763)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 131,038
===========
See notes to financial statements.
1
PRIMA EASTWEST MODEL MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
------------------- -------------------
March 31 March 31 March 31 March 31
2005 2004 2005 2004
-------- -------- -------- --------
REVENUE:
Management fees, net $ 77,898 $107,982 $254,302 $248,785
-------- -------- -------- --------
OPERATING EXPENSES:
Selling, general and administrative expenses 72,679 75,673 223,396 235,548
Depreciation and amortization 518 406 1,525 406
Interest expense 751 751 2,252 2,252
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 73,948 76,830 227,173 238,206
-------- -------- -------- --------
NET INCOME (LOSS) $ 3,950 $ 31,152 $ 27,129 $ 10,579
======== ======== ======== ========
NET PROFIT PER SHARE - $ 0.03 $ 0.23 $ 0.20 $ 0.08
Basic and Diluted
WEIGHTED AVERAGE SHARES OUTSTANDING - 137,322 137,222 137,222 137,222
Basic and Diluted
See notes to financial statements.
2
PRIMA EASTWEST MODEL MANAGEMENT, INC.
STATEMENT OF CASH FLOWS
Nine Months Nine Months
March 31 March 31
2005 2004
(unaudited) (unaudited)
----------- ----------
OPERATING ACTIVITIES:
Net income (loss) $ 27,129 $ 10,579
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 1,525 406
Changes in operating assets and liabilities:
Accounts receivable 42,990 (14,486)
Prepaid expenses and other current assets (8,599) 0
Security deposits 3,380
Accounts payable - talent (54,022) 64,840
- other (28,965) 2,293
Accrued expenses 2,251 (2,608)
-------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (17,691) 64,404
-------- --------
INVESTING ACTIVITIES:
Acquisition of property and equipment (1,023) (6,868)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (1,023) (6,868)
-------- --------
FINANCING ACTIVITIES
Advances from officer's loans 5,390
Advances from related parties 18,714 (62,925)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
18,714 (57,535)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -- --
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR -- --
CASH AND CASH EQUIVALENTS - END OF YEAR $ -- $ --
======== ========
See notes to financial statements.
3
PRIMA EASTWEST MODEL MANAGEMENT, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2005
1. BUSINESS DESCRIPTION
Prima Eastwest Model Management, Inc. ("Prima" or "the Company") was
incorporated under the laws of the State of California on March 22, 1989.
In February 1996 Prima was acquired by Diva Entertainment, Inc., a Florida
corporation ("Diva Florida") which was then a wholly-owned subsidiary of
J.R. Consulting, Inc., a Nevada corporation. In April 1999 Diva Florida
was acquired by Diva Entertainment, Inc., a Delaware Corporation ("Diva
Delaware") and Diva Florida became a wholly-owned subsidiary of Diva
Delaware. On May 27, 2004 Diva Florida declared a dividend to its sole
stockholder, Diva Delaware, of all of the issued and outstanding shares of
Prima that were then held by Diva Florida. Thereafter, on the same date,
Diva Delaware declared a dividend of ninety percent of the Prima stock
held by it to the common stockholders of Diva Delaware on a pro-rata
basis, and also declared a dividend of the remaining ten percent of the
Prima stock held by it to the preferred stockholders of Diva Delaware on a
pro-rata basis.
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.
Losses from operations over the past several years have adversely affected
the Company's liquidity. The Company also plans to continue to expand its
customer base and reduce operating expenses. Although there can be no
assurance that these measures will be successful, the Company believes
that future operations will provide sufficient liquidity to fund current
operations.
2. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures required for annual financial statements have been
condensed or omitted. The Company's management believes that all
adjustments necessary to present fairly the Company's financial position
as of March 31, 2005 and the results of operations and cash flows for the
three and nine month periods ended March 31, 2005 and 2004 have been
included and that the disclosures are adequate to make the information
presented not misleading.
3. USES OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting
principles generally accepted in the Untied States of America requires
management to make estimates and assumptions that affect the reported
4
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of net revenue and expenses during each reporting period. Actual
results could differ from those estimates.
The Company estimates an allowance for doubtful accounts based on the
credit-worthiness of its customers, as well as general economic
conditions. Consequently, an adverse change in those conditions could
affect the Company's estimate.
4. RELATED PARTY TRANSACTIONS
DUE TO OFFICER
The amounts due to an officer of the Company represent advances made by
the officer. The advances are secured by a lien on all assets of the
Company and are evidenced by a series of promissory notes which bear
interest at 3% per annum. The loans are due July 3, 2005.
DUE TO RELATED PARTY
The amounts due to a related party represent net advances made to the
Company. The advances are secured by a lien on all assets of the Company
and are evidenced by a series of promissory notes. The loans are due July
3, 2005.
5. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The major components of selling, general and administrative expenses
are as follows:
9 Months Ended March 31, 2005 9 Months Ended March 31, 2004
----------------------------- -----------------------------
Salaries and benefits $162,062 $145,531
Rent 8,605 33,154
Telephone 7,772 12,372
Professional fees 5,005 -
All other SG&A 39,952 44,446
6. GOING CONCERN
As shown in the accompanying financial statements, as of March 31, 2005,
the Company's current liabilities exceeded its current assets by $477,705
and its total liabilities exceeded its total assets by $871,763. These
factors, among others, indicate that the Company may be unable to continue
existence as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue in existence.
-5-
FORWARD-LOOKING STATEMENTS
This report contains statements that constitute "forward-looking statements."
These forward-looking statements can be identified by the use of predictive,
future-tense or forward-looking terminology like "believes," "anticipates,"
"expects," "estimates," "may," or similar terms. These statements appear in a
number of places in this registration statement and include statements regarding
our intent, belief or current expectations and those of our directors or
officers with respect to, among other things: (i) trends affecting our financial
condition or results of operations, (ii) our business and growth strategies, and
(iii) our financing plans. You are cautioned that any forward-looking statements
are not guarantees of future performance and involve significant risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors.
Factors that could adversely affect actual results and performance include,
among others, our need for additional capital, our history of losses, the fact
that our sole officer and director exerts significant control over us, the
intense competition we face in our business, the fact that our stock is a "penny
stock" and the other material risks described under "ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - Risk Factors". The accompanying
information contained in this report identifies important additional factors
that could materially adversely affect actual results and performance. You are
urged to carefully consider these factors. All forward-looking statements
attributable to us are expressly qualified in their entirety by the foregoing
cautionary statement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with our unaudited
consolidated financial statements and the notes thereto.
Overview
We are in the business of representing talent, including professional fashion
models, commercial actors and theatrical actors. We have operated as a Los
Angeles based talent agency since 1989. Since 1998, we have been affiliated with
Q Management, Inc., a New York-based agency which operated a business similar to
ours, albeit on a larger scale. More information on Q Management and us can be
found at their website, www.qmodels.com. We do not have operations in any other
location.
Our principal business is to represent and market talent and to book engagements
for such talent with client companies which require their services. While the
market for talent is very large, the business of talent agencies is highly
competitive and tends to be dominated by certain very large national agencies.
Our business is also driven by the overall demand in the marketplace for talent,
which tends to fluctuate based on the economy and overall world events and
affairs. While there exist opportunities to expand the business by increasing
our base of talent, such increases are constrained by our lack of capital. Our
business attracts new talent largely by word of mouth and reputation and we do
not have the resources to advertise or engage in significant marketing
activities.
-6-
Our industry has established certain standards, which all agencies generally
follow. Our principal business is booking the talent we represent for jobs with
client companies. Talent is either booked directly with a client or we book
talent through another agency. For work booked directly with the client we
generally earn a commission of approximately 33-40% based on the total
compensation paid to the talent. Under this structure, we retain approximately
20% of the total gross amount paid to the talent and receive payment in an
amount equal to approximately 20% of such gross amount directly paid by the
client. We only book as revenues the net amount which we receive on account of
our fees. Our talent can also be booked through another agency. When our talent
is booked through other agencies, the two agencies enter into a
commission-sharing agreement where we generally receive approximately 5-10% of
the gross amount paid to the talent. Where the talent booking is covered by the
Screen Actors' Guild, we generally receive a fee of approximately 10% of the
gross amount paid to the talent.
Results of Operations
Comparison of Third Fiscal Quarter of 2005 and 2004
The following table summarizes the results of our operations during the fiscal
quarter ended March 31, 2005 and 2004 and provides information regarding the
dollar and percentage increase or (decrease) from the third quarter of 2005 to
the third quarter of 2004.
Percentage
Increase Increase
Line Item 3/31/05 3/31/04 (Decrease) (Decrease)
- ---------- ------- ------- ---------- -------
Revenues 77,898 107,982 (30,084) (28%)
Net Income (Loss) 3,950 31,152 (27,202) (87%)
Operating Expenses 73,948 76,830 (2,882) (4%)
Earnings (Loss) per common share $0.03 $0.23 ($0.18) (78%)
For the three months ended March 31, 2005, we had revenues of $77,898 compared
to revenues of 107,982 during the three months ended March 31, 2004. This $30,
084 or 28% decrease in revenues is attributable to a decrease in talent bookings
during the quarter and seasonality of the business.
We incurred net income of $3,950 for the third quarter of 2005 as compared to a
net income of $31,152 for the third quarter of 2004. The $27,202 decrease in net
income during the three month period ended March 31, 2005 as compared to the
same period of last year is also primarily attributable to a decrease in talent
bookings during the quarter.
Our operating expenses during the third quarter of fiscal year 2005 were $73,948
which was relatively unchanged compared to 76,830 during the same period of
2004.
-7-
Profit per common share for the three months ended March 31, 2005 was $ 0.03 as
compared to $ 0.23 for the same period of the prior fiscal year. This decrease
in profit per common share of $0.18 or 78% is attributable to the factors
described above.
Comparison of Nine Months Ended March 31, 2005 compared to the Nine Months Ended
March 31, 2004
The following table summarizes the results of our operations during the nine
months ended March 31, 2005 and 2004 and provides information regarding the
dollar and percentage increase or (decrease) from the nine months ended March
31, 2005 compared to the nine months ended March 31, 2004.
Percentage
Increase Increase
Line Item 3/31/05 3/31/04 (Decrease) (Decrease)
- ---------- ------- ------- ---------- -------
Revenues 254,302 248,785 5,517 2%
Net Income (Loss) 27,129 10,579 16,550 156%
Operating Expenses 227,173 238,206 (11,033) (5%)
Earnings (Loss) per common share $0.20 $0.08 $0.12 150%
For the nine months ended March 31, 2005, we had revenues of $254,302 compared
to revenues of 248,785 during the nine months ended March 31, 2004. Our revenues
were relatively unchanged from period to period.
We incurred net income of $27,129 for the nine months ended March 31, 2005 as
compared to a net income of $10,579 for the nine months ended March 31, 2004.
The $16,550 increase in net income during the nine months ended March 31, 2005
as compared to the same period of last year is primarily attributable to a
slight increase in talent bookings and a decrease in operating expenses.
Our operating expenses during the nine months ended March 31, 2005 were $227,173
as compared to 238,206 during the same period of 2004. This decrease in
operating expenses of $11,033 or 5% was due to outsourcing certain functions to
Q Management, Inc.
Profit per common share for the nine months ended March 31, 2005 was $0.20 as
compared to $0.08 for the same period of the prior fiscal year. This increase in
profit per common share of $0.12 or 150% is attributable to the factors
described above.
-8-
Liquidity and Capital Resources
General
As of March 31, 2005, we had $0 in cash and cash equivalents and a working
capital deficit of $477,705. We used $17,691 in operating activities for the
nine month period ended March 31, 2005. Our current monthly operating costs are
approximately $24,500.
Historically, we have depended on loans from our principal shareholders and
their affiliated companies (such as Q Management, Inc.) to provide us with
working capital as required. While we do not maintain any available lines of
credit or other commitments of any kind from any financial institutions or third
parties, Q Management, Inc. does maintain a working capital facility and from
time to time utilizes that facility for our operations. Neither Q Management nor
our stockholders are obligated to make any loans or advances to us and there can
be no assurance that Q Management or our stockholders will continue making loans
or advances to us in the future. As of March 31, 2005, we owed approximately
$763,376 in the aggregate to our stockholders and other related parties. The
shareholder loans are booked as long-term liabilities and the other related
party loans are booked as current liabilities which are payable on demand.
To fully implement our business and strategic plans, we will require the
availability of additional working capital, which we may seek to raise through
offerings of securities, loans from banks or other financial institutions or
through additional loans from our stockholders and Q Management or other
sources. We have no funding commitments from any third parties. Additional
financing may not be available when needed or on the terms acceptable to us.
Unavailability of financing may require us to delay, scale back or eliminate
certain plans.
Cash Flow Analysis
For the nine months ended March 31, 2005 and March 31, 2004, our operating
activities used $17,691 and generated $64,404 in cash, respectively. This change
in cash flow generated from operations is primarily attributable to a decrease
in accounts payable which is only partially offset by an increase in accounts
receivable.
For the nine months ended March 31, 2005 our financing activities provided
$18,714 in cash and for the nine months ended March 31, 2004 our financing
activities used $57,537 of cash, respectively.
9
Critical Accounting Policies
The Securities and Exchange Commission issued Financial Reporting Release No.
60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies"
suggesting that companies provide additional disclosure and commentary on their
most critical accounting policies. In Financial Reporting Release No. 60, the
Securities and Exchange Commission has defined the most critical accounting
policies as the ones that are most important to the portrayal of a company's
financial condition and operating results, and require management to make its
most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. The nature of our business
generally does not call for the preparation or use of estimates. As such, no
specific Critical Accounting Policies have been identified.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity or
capital expenditures or capital resources that is material to an investor in our
securities.
Risk Factors Affecting Our Business
There are several material risks associated with Prima. You should carefully
consider the risks and uncertainties described below, which constitute all of
the material risks relating to Prima. If any of the following risks are
realized, our business, operating results and financial condition could be
harmed and the value of our stock could go down. This means you could lose all
or a part of your investment.
FINANCIAL RISKS
We don't have any cash and if we are unable to raise more money we will be
required to delay, scale back or eliminate our aspects of our business plan.
As of March 31, 2005, we had no cash available to fund our operations. The
amounts and timing of our expenditures will depend primarily on our ability to
raise additional capital. We may seek to satisfy our future funding requirements
through new offerings of securities or from other sources, including loans from
our controlling stockholders and their affiliates. Additional financing may not
be available when needed or on terms acceptable to us. We have no current
commitment for additional financing. Unavailability of financing may require us
to delay, scale back or eliminate some or all of our business plan. To the
extent we raise additional capital by issuing equity securities, your ownership
interest would be diluted.
We have a history of losses or minimal profitability.
We have incurred substantial accumulated deficits during the time we have
operated the business ($3,947,127 as of March 31, 2005) and achieved net income
of only $30,799 for fiscal year ended June 30, 2004 and a net loss of $(20,864)
in the fiscal year ended June 30 2003. There can be no assurance that we will be
profitable in the future.
CONCENTRATED CONTROL RISKS
Fountainhead Investments, Inc., which is controlled by Mr. Zachariou, currently
owns 75.16% of the outstanding common stock and he is our only officer and
director. He therefore has the power to make all major decisions regarding our
affairs, including decisions regarding whether or not to issue stock and for
what consideration, whether or not to sell all or substantially all of our
assets and for what consideration and whether or not to authorize more stock for
issuance or otherwise amend our charter or bylaws. He is in a position to elect
all of our directors and to dictate all of our policies.
10
We do not currently have an employment agreement with Mr. Zachariou or key man
insurance on the life of Mr. Zachariou. Our future success will depend in
significant part on our ability to retain and hire key management personnel.
Competition for such personnel is intense and there can be no assurance that we
will be successful in attracting and retaining such personnel.
RISKS RELATING TO OUR BUSINESS
We face intense competition and may not be able to compete successfully.
Competition is intense in our business. Many of our competitors and potential
competitors have substantially greater financial and marketing resources, larger
customer bases, longer operating histories, greater name recognition and more
established relationships than we do. We cannot assure you that we will be able
to compete successfully against current or future competitors or that the
competitive pressures we will face will not harm our business.
Our auditor has expressed substantial doubt about the continuing operation of
our business.
The audit report of our independent auditor for the fiscal year ended June 30,
2004 indicates that we have suffered recurring losses from operations and that
we have a net capital deficiency that raises substantial doubt about our ability
to continue as a going concern. As of June 30, 2004 the Company's current
liabilities exceeded its current assets by $505,313 and its total liabilities
exceeded its total assets by $898,892. These factors, among others, indicate
that the Company may be unable to continue existence. The financial statements
do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue in existence. The
Company's ability to exist will depend on obtaining profitability and positive
cash flow from ongoing operations, and maintaining and increasing existing
credit facilities or raising additional capital.
MARKET RISKS
There is currently no market in our stock, and as a thinly-capitalized company,
there is no guarantee that there will ever be any efficient market in our stock.
If a market in our stock is ever developed, our stock price may become highly
volatile and the stock may be considered a penny stock. The likely market for
our stock would be the Over-the-Counter Bulletin Board (the "OTC Bulletin
Board") or the "pink sheets." Many of the securities traded in these
marketplaces are subject to significant volatility.
ITEM 3. CONTROLS AND PROCEDURES
Within 90 days of the filing of this Form 10-QSB, an evaluation was carried out
under the supervision and with the participation of our management, including
Peter Zachariou, our sole officer and director, of the effectiveness of our
disclosure controls and procedures. Disclosure controls and procedures are
procedures that are designed with the objective of ensuring that information
required to be disclosed in our reports filed under the Securities Exchange Act
of 1934, such as this Form 10-QSB, is recorded, processed, summarized and
reported within the time period specified in the Securities and Exchange
Commission's rules and forms. Based on that evaluation, Mr. Zachariou concluded
that as of March 31, 2005, and as of the date that the evaluation of the
effectiveness of our disclosure controls and procedures was completed, our
disclosure controls and procedures were effective to satisfy the objectives for
which they are intended.
There were no changes in our internal control over financial reporting
identified in connection with the evaluation performed that occurred during the
fiscal year covered by this report that has materially affected or is reasonably
likely to materially affect, our internal control over financial reporting.
11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
EXHIBITS.
31 Certification of Principal Executive Officer and Principal Financial
Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Principal Executive Officer and Principal Financial
Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DATED: August 8, 2005
PRIMA EASTWEST MODEL MANAGEMENT, INC.
By: /s/ Peter Zachariou
-------------------------------------
Name: Peter Zachariou
Title: Chief Executive Officer, Chairman of the Board of
Directors, Treasurer and Secretary
13
EXHIBIT INDEX
Exhibit
Number Description
- - ------ -----------
31 Certification of Principal Executive Officer and Principal
Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification of Principal Executive Officer and Principal
Financial Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.