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 January 31, 2000
----------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission file number 0-17623
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PALM DESERT ART, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 02-429620
------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification No.)
74-350 Alessandro Drive, Suite A2, Palm Desert, CA 92260
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(Address of Principal Executive Offices)
(760) 346-1192
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(Issuer s Telephone Number, Including Area Code)
N/A
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(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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
Common Stock, $.001 par value per share, 7,506,120 shares outstanding
at January 31, 2000.
Transitional Small Business Disclosure Format (check one)
Yes No X
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PALM DESERT ART, INC.
INDEX TO FORM 10-QSB
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of January 31, 2000 and April 30, 1999 3
Statements of Income for the three and nine months
ended January 31, 2000 and January 31, 1999 5
Statement of Changes in Stockholders' as of
January 31, 2000 6
Statements of Cash Flows for the nine months ended
January 31, 2000 and January 31, 1999 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submissions of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
PALM DESERT ART, INC.
Balance Sheet
ASSETS
<TABLE>
<CAPTION>
Assets
01/31/00 04/30/99
(Unaudited) (Unaudited)
<S> <C> <C>
Current assets
Cash $ 23,961 $ 201
Accounts receivable 1,038,417 624,899
Inventory 549,890 436,441
Prepaid expense 62,452 15,000
-------------------------
Direct response advertising 194,342
-------------------------
Total current assets 1,674,720 1,270,883
Property and equipment
Leasehold improvements 48,074 48,074
Furniture and fixtures 11,500 11,500
Vehicles 33,544 4,552
Equipment 13,569 11,197
-------------------------
106,687 75,323
Less accumulated depreciation 16,822 9,859
-------------------------
Net property and equipment 89,865 65,464
-------------------------
Other assets
Prepaid Rent 151,417 119,792
Deposits 328,134 170,184
Note receivable 308,315 308,315
Direct response advertising 139,413 29,757
Other Receivables 64,150 -
Other Prepaid Assets 209,265 -
-------------------------
Total other assets 1,200,694 628,048
-------------------------
Total assets $2,965,279 $1,964,395
=========================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
01/31/00 04/30/99
(Unaudited) (Unaudited)
<S> <C> <C>
Current liabilities
Accounts payable $ 429,583 $ 151,719
Loans payable 618,749 536,494
Accrued liabilities 332,610 162,377
Income taxes payable - 4,691
Deferred taxes- current - 15,474
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Total current liabilities 1,380,942 870,755
Deferred taxes-long term - 22,531
Total liabilities 1,380,942 893,286
-------------------------
Stockholders' equity
Common stock - $.001 par value,
25,000,000 shares authorized,
7,506,120 shares outstanding (after
deducting 2,500 shares in treasury) 7,491 3,829
Common stock subscribed 164,000 164,000
Common stock subscription receivable (164,000) (164,000)
Additional paid-in capital 1,919,221 871,210
Retained earnings (342,375) 196,715
Treasury Stock - (645)
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Total stockholders' equity 1,584,337 1,071,109
-------------------------
Total liabilities and
stockholders' equity $2,965,279 $1,964,395
=========================
</TABLE>
PALM DESERT ART, INC.
Statements of Income
Nine Months Ended January 31, 2000 and 1999
<TABLE>
<CAPTION>
01/31/2000 01/31/1999 01/31/2000 01/31/1999
(3 Months) (3 Months) (9 Months) (9 Months)
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 339,160 556,900 1,447,281 1,671,813
Cost of sales $ 120,484 253,292 477,600 625,477
------------------------------------------------
Gross profit $ 218,676 303,608 969,681 1,046,336
Selling, general, and
administrative expenses $ 357,574 296,970 1,405,879 1,015,365
Operating income
(loss) $(138,898) 6,638 (436,198) 30,971
Income tax benefit
Interest expense $ 1,353 10,411 35,315 13,726
Net income (loss) $(140,251) (3,773) (471,513) 17,245
------------------------------------------------
Income (loss) per
share - Basic $ (0.02) (0.03) (0.06) 0.02
Income (loss) per
share - Diluted $ (0.02) - (0.06) -
</TABLE>
PALM DESERT ART, INC.
Statement of Changes in Stockholders' Equity As of January 31, 2000
Nine Months Ended January 31, 2000
<TABLE>
<CAPTION>
Retained
Common Stock Earnings
Common Common Stock Subscription Additional Paid Treasury (Accumulated
stock Subscribed Receivable -In Capital Stock Deficit) Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1999 3,829 164,000 (164,000) 871,210 (645) 196,715 1,071,109
Net loss (276,484) (276,484)
Issuance of common stock 1,397 126,832 128,229
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Balance, July 31, 1999, 5,226 164,000 (164,000) 998,042 (645) (79,769) 922,854
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Net loss (122,355) (122,355)
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Balance, October 31, 1999 $5,226 $164,000 $(164,000) $998,042 $(645) $(202,124) $ 800,499
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Net loss (140,251) (140,251)
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Issuance of common stock 129 $12,771 12,900
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Balance, January 31, 2000 $5,355 $164,000 $(164,000) $1,010,813 $(645) $(342,375) $ 673,148
===========================================================================================
</TABLE>
PALM DESERT ART, INC.
Statements of Cash Flows
Nine Months Ended January 31, 2000 and 1999
<TABLE>
<CAPTION>
01/31/2000 01/31/1999
(9 Months) (9 Months)
Cash flows from operating activities (Unaudited) (Unaudited)
<S> <C> <C>
Net income (471,513) 102,557
Adjustments to reconcile net income to
net cash used by operating activities
Depreciation Expense 6,963 1,911
Amortization Expense 189,692
Stock issued for payment of expenses
(Increase) in
Accounts receivable (413,518) (443,042)
Inventory (18,949) (373,579)
Goodwill - (128,844)
Prepaid expenses 165,069 (21,783)
Notes Receivable - (68,561)
Direct acquisition costs -
Deposits (48,450) (14,368)
Other Prepaid Assets (209,265)
Direct response advertising 54,929 (8,074)
Increase (decrease) in
Accounts payable 277,864 142,542
Accrued liabilities 170,233 264,698
Accrued interest 2,072
Income Tax Payable (4,691)
Deferred taxes (38,005)
----------------------
Net cash used by operating activities (339,641) (544,471)
----------------------
Cash flows from investing activities
Additions to property and equipment (31,364) (242,131)
----------------------
Cash flows from financing activities
Net short term borrowing - cash overdraft - (11,251)
Common stock deposits received -
Proceeds from borrowings 82,255 142,643
Proceeds from sale of stock 409,157 655,210
----------------------
Net cash provided by financing activities 491,412 786,602
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Net increase in cash 120,407 -
Cash, beginning of quarter 450 -
----------------------
Cash, end of quarter 23,961 -
----------------------
</TABLE>
PALM DESERT ART, INC.
Notes to Financial Statements
Basis of Presentation
- ---------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310
of Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction with the
Company's audited financial statements at, and for the fiscal year ended,
April 30, 1999. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine months
ended January 31, 2000 are not necessarily indicative of the results that
may be expected for the year ending April 30, 2000.
1. Direct Response Advertising
- ---------------------------------
The Company expenses the costs of advertising the first time
advertising takes place, except for direct-response advertising,
which is capitalized and amortized over its expected period of future
benefits.
Direct-response advertising consists primarily of magazine
advertisements that include response coupons for the Company's
products. The capitalized costs of the advertising are amortized as
sales are recognized over a period, not to exceed two years.
2. Loans Payable
- -------------------
<TABLE>
Loans payable consist of:
<S> <C>
Loan payable to a minority stockholder, interest
at 9%, due July 1998. This note is guaranteed by
the majority stock-holder, and the guarantee is
collateralized by all of the shares the majority
stockholder owns of the Company's stock. The
pledged stock is in the hands of the noteholder.
The original terms have been extended with no due
date. $ 55,000
Unsecured notes payable to individuals, due on
demand, with interest rates ranging from 5% to 15%. $623,554
========
</TABLE>
3. Commitments and Contingencies
- -----------------------------------
The note receivable of $308,315 represents the amount management believes
the Company is owed from the transfer of the RM&M Framemakers, Inc.
business operations. The Company is reviewing its legal options for
collection. If management is not able to enforce its ability to collect
through legal action it will have to reserve or write off the receivable.
As of March 6,2000, management does not believe the asset is impaired.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
The statements which are not historical facts contained in this
Quarterly Report on Form 10-QSB are forward looking statements that involve
a number of known and unknown risks, uncertainties and other factors, all
of which are difficult or impossible to predict and many of which are
beyond the control of the Company, which may cause the actual results,
performance or achievements of the Company to be materially different from
any future results, performance or achievements expressed or implied by
such forward looking statements. Such factors include, but are not limited
to, uncertainty regarding market acceptance of current artwork and the
ability to successfully develop and market new artwork, the impact of
supply constraints, uncertainties relating to customer plans and
commitments, competition, uncertainties relating to economic conditions in
the markets in which the Company operates, the ability to hire and retain
key personnel and the ability to obtain additional capital if required. The
words "believe", "expect", "anticipate", and "seek" and similar expressions
identify forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of
the date the statement was made.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to meet its financial needs depends upon funds
generated from operating activities, accounts receivable and inventories,
short-term borrowing capacity and the ability to obtain long-term capital
on satisfactory terms. Liquidity has been and will continue to be an
intermittent problem because revenues from operations do not generate
sufficient cash flow.
The Company will continue its efforts to increase sales, maintain
margins, reduce inventory levels and collect its accounts receivables.
The Company seeks to raise additional capital through the sale of a
convertible debenture or common stock or some type of debt financing
during the fiscal year ending April 30, 2000. However there can be no
assurances that financing can be obtained or, if obtained, that it will be
of a sufficient quantity to meet the company's immediate needs or that it
will be on reasonable terms.
The proceeds from the raising of capital will be used for expansion,
providing liquidity and the promotion and enhancement of its e-commerce
site, E-ArtNow.com
RESULTS OF OPERATIONS
NINE MONTHS ENDED January 31, 2000
Sales for the nine months ended January 31, 2000 were $1,447,281 a
decrease of $224,532or 13% compared with the same period in 1999. Cost of
sales as a percentage of sales was 33% and 37% for the nine months ended
January 31, 2000 and 1999, respectively. The decrease in the cost of sales
percentage from 1999 to 2000 was primarily the result of the changes in
sales mix. Selling, general and administrative expenses increased $390,514
in the first nine months ended January 31, 2000 compared with the same
period the previous year. Selling expenses include such items as retail
sales location occupancy costs, advertising, sales commissions, brochures
and other promotional material costs, freight and certain salary expenses.
General and administrative expenses include all corporate overhead costs.
Selling expenses have remained relatively higher primarily due to increased
promotional costs and fixed and variable compensation. Sales location
occupancy costs also increased over the same period last year due to the
opening of the Company's new galleries in New York City and West Palm
Beach, FL. Overall, the net loss for the nine months ended January 31,
2000, is reflective of the seasonality of the Registrants business in its
Palm Desert, CA and West Palm Beach, FL. Galleries. The Company's strategy
is to continue to seek to attract new promising artists and to promote
their works while providing the consumer with substantial value at
reasonable prices. The Company intends to continue to seek out acquisition
candidates for privately-owned art galleries throughout the country.
Although management is of the opinion that administrative expenses will
continue to rise as a result of its plan to acquire and consolidate art
galleries, the Company believes it will realize economies of scale and
increase its margins when it sells the artwork it publishes in newly
acquired galleries.
During the third quarter ended January 31, 1999, management effected
a soft launch of its e-commerce site, E-ArtNow.com. During the quarter,
management was seeking investment capital to provide cash to promote its
site. The investment capital has not been raised as of the date of this
filing. Despite the lack of cash available to promote its site, the site
has generated activity in the nature of sales, inquiries from customers and
artists. Management believes the limited marketing activities undertaken
will benefit the site and the physical galleries. Management has
maintained a database of the potential customer registrations to the site.
Management believes this database will be the source of future sales for
its art.
Management, in accordance with GAAP, has expensed all of the
development and maintenance costs associated with its e-commerce site.
Management believes that the off-balance value of the site has not been
adequately reflected in the market value of its stock. Management has come
to this conclusion based on the market valuations of e-commerce sites in
general and based on the valuations of certain of its competitors.
Management's plan to increase the value of its e-commerce site will be
focused on raising equity to further promote its site and exploring the
feasibility of spinning-off the site to a corporation, which will be
publicly traded.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
N/A
Item 2. Changes in Securities and Use of Proceeds.
Management issued 129,000 shares of its $.001 par value Common Stock for a
total gross offering price of $12900.
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submissions of Matters to a Vote of Security Holders
N/A
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
July 31, 1999.
SIGNATURES
Pursuant to the requirements 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.
PALM DESERT ART, INC.
By: /s/ Hugh G. Pike
-----------------------
Hugh G. Pike, President
(Duly Authorized Officer)
(Principal Financial Officer)
Date: December 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> OCT-31-1999
<CASH> 23,961
<SECURITIES> 0
<RECEIVABLES> 1,038,417
<ALLOWANCES> 0
<INVENTORY> 549,890
<CURRENT-ASSETS> 1,674720
<PP&E> 1,200,694
<DEPRECIATION> 16,822
<TOTAL-ASSETS> 2,965,279
<CURRENT-LIABILITIES> 1,380,942
<BONDS> 0
0
0
<COMMON> 7,491
<OTHER-SE> 1,576,846
<TOTAL-LIABILITY-AND-EQUITY> 2,965,279
<SALES> 1,447,281
<TOTAL-REVENUES> 1,447,281
<CGS> 477,600
<TOTAL-COSTS> 477,600
<OTHER-EXPENSES> 1,405,879
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,315
<INCOME-PRETAX> (471,513)
<INCOME-TAX> 0
<INCOME-CONTINUING> (471,513)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (471,513)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
