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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2000
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: 001-15591
PREMIER CLASSIC ART, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3680581
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1158 Staffler Road
Bridgewater, New Jersey 08807
(Address of principal executive offices)
(Zip Code)
(908) 526-7388
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At January 2, 2001 there were 7,648,946 shares of Common Stock, $.001
par value, outstanding.
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PREMIER CLASSIC ART, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information 1
Item 1. Financial Statements
Balance Sheets as of November 30, 2000
(unaudited) and May 31, 2000 2
Statements of Operations and Comprehensive
Loss for the Six and Three Months Ended November
30, 2000 and November 30, 1999 (unaudited) 3 - 4
Statements of Cash Flows for the Six and Three
Months Ended November 30, 2000 and
November 30, 1999 (unaudited) 5
Notes to Financial Statements
(unaudited) 6 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10 - 11
Part II - Other Information
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
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PART I. Financial Information
Item 1. Financial Statements
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
financial statements pursuant to the rules and regulations of the Securities and
Exchange Commission. It is suggested that the following financial statements be
read in conjunction with the year-end consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB dated
August 21, 2000.
The results of operations for the six-month period ended November 30,
2000, are not necessarily indicative of the results to be expected for the
entire fiscal year or for any other period.
-1-
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PREMIER CLASSIC ART, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
November 30, May 31,
2000 2000
----------- -----------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ -- $ 28,408
Marketable securities -- 2,188
Inventories 295,283 295,297
Prepaid expenses-current 166,666 166,666
----------- -----------
Total Current Assets 461,949 492,559
Other assets 125,000 208,334
----------- -----------
TOTAL ASSETS $ 586,949 $ 700,893
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
Current Liabilities:
Short-term debt $ 375,000 $ 775,000
Convertible notes payable 588,645 --
Accrued expenses 120,753 189,001
----------- -----------
Total Current Liabilities 1,084,398 964,001
----------- -----------
Commitments and Contingencies
Stockholders' (Deficiency):
Series A cumulative convertible
preferred stock - 8% cumulative,
par value $.002 per share, authorized
10,000,000 shares; outstanding 136,000 272 272
Common stock - par value $.001 per share,
authorized 50,000,000 shares;
outstanding 7,648,946 7,649 7,649
Additional paid-in capital 1,999,073 1,970,323
Deficit (2,504,443) (2,196,733)
Cumulative other comprehensive
(loss) -- (44,619)
----------- -----------
Total Stockholders' (Deficiency) (497,449) (263,108)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIENCY) $ 586,949 $ 700,893
=========== ===========
</TABLE>
See notes to financial statements.
-2-
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PREMIER CLASSIC ART, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
-------------------------- --------------------------
November 30, November 30 November 30, November 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 1,107 $ -- $ -- $ --
----------- ----------- ----------- -----------
Cost and Expenses:
Cost of sales 14 -- -- --
Selling, general
and administrative 214,991 516,577 106,101 501,577
----------- ----------- ----------- -----------
215,005 516,577 106,101 501,577
----------- ----------- ----------- -----------
Loss from operations (213,898) (516,577) (106,101) (501,577)
Other expense
Interest expense-net 47,005 33,121 27,358 28,246
Loss on sale of marketable securities 44,619 -- -- --
----------- ----------- ----------- -----------
Total other expense 91,624 33,121 27,358 28,246
----------- ----------- ----------- -----------
Loss before income taxes and
extraordinary gain (305,522) (549,698) (133,459) (529,823)
Income tax benefit -- 104,000 -- --
----------- ----------- ----------- -----------
Loss before extraordinary gain (305,522) (445,698) (133,459) (529,823)
Extraordinary gain on
extinguishment of debt (net of
income tax of $104,000) -- 201,256 -- --
----------- ----------- ----------- -----------
Net loss $ (305,522) $ (244,442) $ (133,459) $ (529,823)
=========== =========== =========== ===========
Net loss per common
share-basic and diluted $ (0.04) $ (0.13) $ (0.02) $ (0.08)
Extraordinary gain on
extinguishment of debt -- 0.06 -- --
----------- ----------- ----------- -----------
Net loss per common
share-basic and diluted $ (0.04) $ (0.07) $ (0.02) $ (0.08)
=========== =========== =========== ===========
Weighted average of common
shares outstanding-basic
and diluted 7,648,946 3,455,387 7,648,946 6,736,943
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
-3-
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PREMIER CLASSIC ART, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
-------------------------- --------------------------
November 30, November 30 November 30, November 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $ (305,522) $ (244,442) $ (133,459) $ (529,823)
Other comprehensive loss net of income taxes:
Unrealized gain on
marketable securities 44,619 - - -
----------- ----------- ----------- -----------
Comprehensive income (loss) $ (260,903) $ (244,442) $ (133,459) $ (529,823)
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
-4-
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PREMIER CLASSIC ART, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
November 30, November 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (305,522) $ (244,442)
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation -- 3,387
Extraordinary gain on extinguishment of debt -- (305,256)
Non-cash compensation -- 210,762
Loss on sale of marketable securities 44,619 --
Changes in operating assets and liabilities:
Increase in security deposits -- (5,000)
(Increase) decrease in prepaid expenses 83,334 (459,920)
Increase in accrued expenses (68,234) 52,934
----------- -----------
Net Cash Used in Operating Activities (245,803) (747,535)
----------- -----------
Cash flows from investing activities:
Purchase of marketable securities -- (46,807)
Sale of marketable securities 28,750 --
----------- -----------
Net Cash Used in (Provided by) Investing Activities 28,750 (46,807)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock -- 238,600
Proceeds from short term borrowings 588,645 775,000
Payments of short term borrowings (400,000) (1,500)
----------- -----------
Net Cash Provided by Financing Activities 188,645 1,012,100
----------- -----------
Net (decrease) in cash (28,408) 217,758
Cash - beginning of year 28,408 --
----------- -----------
Cash - end of year $ -- $ 217,758
=========== ===========
Supplemental disclosure of non-cash activities:
Capital contribution to forgive debt $ 38,319
===========
Unrealized loss on marketable securities $ (869)
===========
Common stock issued for inventory $ 306,879
===========
</TABLE>
See notes to financial statements.
-5-
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PREMIER CLASSIC ART, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The balance sheet as of November 30, 2000 and the statements of
operations and comprehensive loss and cash flows for the period
presented herein have been prepared by the Company and are unaudited.
In the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and comprehensive loss and cash flows
for all periods presented have been made. The information for May 31,
2000 was derived from audited financial statements.
2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company's operating activities have just commenced under new
management.
The Company's ability to continue as a going concern is dependant upon
its ability to obtain needed working capital through additional equity
and/or debt financing and its ability to market its inventory.
Management is actively seeking additional capital to liquidate its
current obligations. There is no assurance that additional capital will
be obtained or the Company will be able to sell its current inventory.
The Company's $775,000 note payable was due September 3, 2000. On
August 18, 2000 the Company signed an extension agreement whereas the
Company paid the principal amount of $300,000 on September 3, 2000 and
$100,000 on November 3, 2000. The balance of the note, $375,000, will
be due and payable together with accrued interest on September 3, 2001.
The Company raised the capital needed to pay the $400,000 by issuing
$575,000 of 12% convertible promissory notes which are due the earlier
of January 3, 2001 or upon completion of an equity financing. The notes
are convertible into 4,600,000 shares of the Company's common stock at
$.125 per share. The Company does not have adequate cash reserves to
fulfill these requirements and there is no assurance that the terms of
this agreement can be met. These uncertainties raise substantial doubt
about the ability of the Company to continue as a going concern.
The financial statements do not include any adjustments relative to the
recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
6
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3. EARNINGS PER COMMON SHARE
Basic and diluted earnings (loss) per common share is computed by
dividing net loss by the weighted average number of common shares
outstanding during the year. Diluted earnings per common share are
computed by dividing net earnings by the weighted average number of
common and potential common shares during the year. Potential common
shares are excluded from the loss per share calculation, because the
effect would be antidilutive. Potential common shares relate to the
preferred stock that is convertible into common stock, convertible debt
and outstanding warrants. The number of potential common shares
outstanding were 5,547,946 and -0- as of November 30, 2000 and 1999.
4. ACQUISITION
On September 3, 1999, the Company acquired Cool Classic, Inc., a
subsidiary of Joe Cool Collectibles, Inc. for 3,069,788 shares of the
Company's common stock. Cool Classic, Inc. owned inventory of original,
hand-painted production animation cels.
The acquired inventory was accounted for as a non-monetary transaction
in accordance with Accounting Principles Board Opinion No. 29,
"Accounting for Non-Monetary Transactions" (APB No. 29). The Company
recorded the inventory value at $306,979, which represents the fair
value ($.10 per share) of the stock issued to acquire Cool Classic,
Inc. Pursuant to the agreement the acquired inventory will consist of
400,000 original, hand-painted production animation cels. Cool Classic,
Inc. had no operating results but was a collector of animated art cels
and, accordingly, the Company has not included any proforma unaudited
results of operations.
5. MARKETABLE SECURITIES
On June 13, 2000 the Company exchanged 17,500 shares of marketable
securities owned by the Company for 5,000 shares of other marketable
securities owned by a shareholder. The Company recorded a realized loss
of $44,619 for the six months ended November 30, 2000 in connection
with the exchange. The Company sold the 5,000 shares received from
shareholder on the exchange date and recorded a contribution of capital
by the shareholder in the amount of $28,750 .
6. DEBT
Short-term debt consists of the following:
(a) On September 3, 1999, the Company issued a $775,000, 10 1/2 %
convertible note to a related party (a Director of the Company) due
September 3, 2000. Interest is payable monthly, commencing December
1999 and payable in arrears from September 1999.
7
<PAGE>
On August 18, 2000, the Company signed an agreement to extend the due
date until September 3, 2001. Under this agreement, the Company paid
the required principal amount of $300,000 on September 3, 2000 and paid
an additional $100,000 on November 3, 2000. The balance of the note,
$375,000, will be due and payable together with accrued interest on
September 3, 2001.
The note is convertible into 250,000 shares of the Company's common
stock, at the option of the holder, at a conversion price of $3.10 per
share. The automatic conversion provision has been terminated. The
Company paid $37,975 in interest on this note for the six months ended
November 30, 2000. In connection with the execution of this note, the
Company sold the holder 100,000 shares of the Company's restricted
common stock for $.001 per share (which was below fair market value)
and a warrant to purchase 400,000 shares of the Company's common stock
at an exercise price of $1.00 per share.
The holder of this note received a first priority security in the
Company's inventory and an insurance policy in the amount of $1.5
million, naming the holder as an additional insurer.
(b) During the quarter ended November 30, 2000 the Company issued $575,000
of 12% convertible promissory notes which are due the earlier of
January 3, 2001 or upon completion of an equity financing. The notes
are convertible into 4,600,000 shares of common stock at $.125 per
share. Interest is payable monthly in arrears which the Company has the
option to pay in cash or in additional units of the Company's common
stock. The Company also issued 4,600,000 warrants to purchase the
Company's common stock at $.125 per share, exercisable immediately,
expiring in September 2002.
7. EXTRAORDINARY GAINS
In August 1999, the Company issued common shares to extinguish
long-term debt and accrued interest. In connection with these
transactions the Company recorded extraordinary gains of approximately
$201,256, net of tax of $104,000 ($.08 per share) for the six months
ended November 30, 1999.
8
<PAGE>
Item 2. Management's' Discussion and Analysis of Financial Condition and
Results of Operations
The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially and adversely affect revenues and
profitability, including competition; changes in consumer preferences and
spending habits; the inability to successfully manage growth; seasonality; the
ability to introduce and the timing of the introduction of new products and the
inability to obtain adequate supplies or materials at acceptable prices. As a
result of these and other factors, the Company may experience material
fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect its business, financial condition,
operating results, and stock prices. Furthermore, this document and other
documents filed by the Company with the Securities and Exchange Commission (the
"SEC") contain certain forward-looking statements under the Private Securities
Litigation Reform Act of 1995 with respect to the business of the Company. These
forward-looking statements are subject to certain risks and uncertainties,
including those mentioned above, and those detailed in the Company's Form 10-KSB
dated August 21, 2000, which may cause actual results to differ significantly
from these forward-looking statements. The Company undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements which may be necessary to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events. An investment
in the Company involves various risks, including those mentioned above and those
which are detailed from time to time in the Company's SEC filings.
Liquidity and Capital Resources
The Company does not have adequate cash reserves to meet its future cash
requirements. The Company is seeking to raise additional working capital through
debt or equity financing. The Company's ability to continue as a going concern
will depend upon successful completion of such financing and on its ability to
market its inventory. The Company does not expect to have to purchase any
property or equipment over the next year that cannot be financed in the ordinary
course of business.
On September 3, 1999, the Company issued a $775,000 principle 10 1/2%
convertible note due September 3, 2000 (the "Note") to a related party (a
Director of the Company). Interest is payable monthly in arrears from September
1999, commencing in December 1999. The Note is convertible into 250,000 shares
of the Company's common stock, at $3.10 per share. In connection with the
execution of this Note, the Company sold the holder 100,000 shares of the
Company's common stock for $.001 per share (which was below fair market value)
and issued him a warrant to purchase 400,000 shares of the Company's common
stock at $1.00 per share. The Note is collateralized with 200,000 of the
Company's cels. On August 18, 2000, the Company signed an extension agreement to
extend the due date until September 3, 2001 (the "Extension Agreement"). Under
this agreement, the Company paid the required principal reduction of $300,000 on
September 3, 2000, and $100,000 on November 3, 2000. The Company raised the
capital needed to pay the $400,000 by issuing $575,000 of 12% convertible
Promissory Notes which are due the earlier of four months or upon completion of
an equity financing. Interest is payable monthly in arrears which the Company
has the option to pay in cash or in additional units of the Company's common
stock. The Company also issued 4,600,000 warrants to purchase the Company's
common stock at $.125 per share, exercisable immediately, expiring in September
2002.
9
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The Note is convertible into 4,600,000 shares of the Company's common stock at
$.125 per share. If the Company sells its common stock for a price below $.125
per share both the conversion price and the warrant price are reduced to the
lower price. There is no assurance that the Company will be able to fulfill the
terms of this agreement.
Results of Operations
The Company plans to continue marketing and selling its collection of
cels over the internet and through art galleries department stores, other retail
outlets and catalogues. The Company currently has no agreement with any such
entity. The Company anticipates that it will take more than five years for it to
liquidate the collection so as to maximize its value and to take advantage of
opportunities to sell pieces when possible. The Company has received only
limited revenues from sales of its cels to date. Royal, in accordance with its
agreement with the Company provides the necessary artistic staff to process and
prepare its cels for presentation to the public. The Company has 35,000 cels
ready for presentation and distribution.
Six Months Ended November 30, 2000 compared to
Six Months Ended November 30, 1999
Sales
Sales increased from $-0- for the six months ended November 30, 1999 to
$1,107 for the six months ended November 30, 2000. The Company
attributes the increase to its recent acquisition of the animation cels
it will market.
Cost of Sales
Cost of sales increased from $-0- for the six months ended November 30,
1999 to $14 for the six months ended November 30, 2000. The Company
attributes the increase to its recent acquisition of the animation cels
it will market.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased from $516,577
for the six months ended November 30, 1999 to $214,991 for the six
months ended November 30, 2000. The Company attributes the decrease
primarily to acquisition costs of $167,000 and compensation expense of
$211,000 for the six months ended November 30, 1999.
Interest Expense
Interest expense increased from $33,121 for the six months ended
November 30, 1999 to $47,005 for the six months ended November 30,
2000. The Company attributes the increase to the interest on the funds
the Company borrowed to make the acquisition.
10
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Three Months Ended November 30, 2000 compared to
Three Months Ended November 30, 1999
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased from $501,577
for the three months ended November 30, 1999 to $106,101 for the three
months ended November 30, 2000. The Company attributes the decrease
primarily to acquisition costs of $167,000 and compensation expense of
$211,000 for the three months ended November 30, 1999.
Interest Expense
Interest expense decreased from $28,246 for the three months ended
November 30, 1999 to $27,358 for the three months ended November 30,
2000. The Company attributes the decrease to the interest on the funds
the Company borrowed to make the acquisition.
11
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any litigation or pending legal
proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Exhibit 27.1 Financial Data Schedule.
(b) There were no Current Reports on Form 8-K filed by
the registrant during the quarter ended November 30,
2000.
12
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
PREMIER CLASSIC ART, INC.
Date: January 11, 2001 By: /s/ Charles Trapp
----------------------------
Charles Trapp, President
(Principal Financial and
Accounting Officer)
13
