SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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: 0-28128
ELEGANT ILLUSIONS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 88-0282654
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Cannery Row, Suite 205, Monterey, CA 93940
(Address of principal executive offices)
Issuer's telephone number, including area code: (408) 649-1814
--------------
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
Indicate the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Class Outstanding at June 30, 1996
Common Stock, par value 17,434,338 Shares
$.001 per share
Transitional Small Business Format (check one); Yes No X
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying financial statements are unaudited for the interim
periods, but include all adjustments (consisting only of normal recurring
accruals) which management considers necessary for the fair presentation of
results for the three and six months ended June 30, 1996.
Moreover, these financial statements do not purport to contain complete
disclosure in conformity with generally accepted accounting principles and
should be read in conjunction with the Company's audited financial statements
at, and for the fiscal year ended December 31, 1995.
The results reflected for the three and six months ended June 30, 1996 are
not necessarily indicative of the results for the entire fiscal year.
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<PAGE>
<TABLE>
<CAPTION>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, June 30,
1995 1996
------------------ ------------------
(Derived from (Unaudited)
Audited
Financial
Statements)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,699,110 $ 1,570,261
Accounts receivable 103,876 105,123
Inventory 1,369,348 1,692,268
Prepaid expenses 17,915 71,207
------------------ ------------------
TOTAL CURRENT ASSETS 3,190,249 3,438,859
PROPERTY AND EQUIPMENT, NET 751,181 824,486
OTHER ASSETS (including merchandise credit
of $181,992 at June 30, 1996) 81,159 266,686
------------------ ------------------
$ 4,022,589 $ 4,530,031
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank $ 750,000 $
Accounts payable and accrued expenses 119,982 91,275
------------------ ------------------
TOTAL CURRENT LIABILITIES 869,982 91,275
NOTE PAYABLE 100,000 40,000
DEFERRED INCOME TAXES 69,778 69,778
------------------ ------------------
TOTAL LIABILITIES 1,039,760 201,053
------------------ ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - authorized 20,000,000 shares, $.001 par value, issued and
outstanding 16,728,277 and 17,434,338 on
December 31, 1995 and June 30, 1996, respectively 16,728 17,434
Additional paid-in capital 1,828,927 2,978,221
Retained earnings 1,137,174 1,333,323
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 2,982,829 4,328,978
------------------ ------------------
$ 4,022,589 $ 4,530,031
================== ==================
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<PAGE>
<CAPTION>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
1995 1996
------------------ ------------------
<S> <C> <C>
REVENUES $ 1,492,942 $ 1,816,390
COST OF GOODS SOLD 366,824 477,305
------------------ ------------------
GROSS PROFIT 1,126,118 1,339,085
SELLING, GENERAL AND ADMINISTRATIVE 900,968 1,092,514
------------------ ------------------
INCOME BEFORE INCOME TAXES 225,150 246,571
PROVISION FOR INCOME TAXES 89,963 98,200
------------------ ------------------
NET INCOME $ 135,187 $ 148,371
================== ==================
WEIGHTED AVERAGE SHARES OUTSTANDING 16,692,000 17,401,000
================== ==================
NET INCOME PER COMMON SHARE $ nil $ nil
================== ==================
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<PAGE>
<CAPTION>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
1995 1996
------------------ ------------------
<S> <C> <C>
REVENUES $ 2,657,384 $ 3,196,004
COST OF GOODS SOLD 601,417 844,103
------------------ ------------------
GROSS PROFIT 2,055,967 2,351,901
SELLING, GENERAL AND ADMINISTRATIVE 1,681,202 2,025,752
------------------ ------------------
INCOME BEFORE INCOME TAXES 374,765 326,149
PROVISION FOR INCOME TAXES 149,763 130,000
------------------ ------------------
NET INCOME $ 225,002 $ 196,149
================== ==================
WEIGHTED AVERAGE SHARES OUTSTANDING 16,530,000 17,065,000
================== ==================
NET INCOME PER COMMON SHARE $ .01 $ .01
================== ==================
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<PAGE>
<CAPTION>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
1995 1996
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 225,002 $ 196,149
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 85,067 111,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 21,789 (1,247)
(Increase) in inventory (236,716) (322,920)
(Increase) decrease in prepaid expenses (12,227) (53,292)
Increase (decrease) in accounts payable and accrued expenses 17,750 (28,707)
Increase (decrease) in income taxes payable 29,000
------------------ ------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 129,665 (99,017)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (87,195) (179,975)
Other assets 3,750 10,143
------------------ ------------------
NET CASH USED IN INVESTING ACTIVITIES (83,445) (169,832)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowing from bank credit line (750,000)
Partial repayment of note payable (60,000)
Sale of common stock 350,000 950,000
------------------ ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 350,000 140,000
------------------ ------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 396,220 (128,849)
CASH AND CASH EQUIVALENTS BALANCE, Beginning of period 435,295 1,699,110
------------------ -----------------
CASH AND CASH EQUIVALENTS BALANCE, End of period $ 831,515 $ 1,570,261
================== ==================
</TABLE>
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<PAGE>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. COMMENTS
The accompanying consolidated condensed financial statements are
unaudited but, in the opinion of the management of the Company, contain
all adjustments, consisting of only normal recurring accruals,
necessary to present fairly the financial position at June 30, 1996,
the results of operations for the three months and six months ended
June 30, 1996 and 1995, and the changes in cash flows for the six
months ended June 30, 1996 and 1995. Certain information and footnote
disclosures normally included in financial statements that have been
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission, although management of the
company believes that the disclosures in these financial statements are
adequate to make the information presented therein not misleading. For
further information, refer to the financial statements and footnotes
thereto included in the Company's 1995 Form 10 - KSB filed with the
Securities and Exchange Commission. Operating results for the six
months period ended June 30, 1996, are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996.
2. SALE OF STOCK
During the six months ended June 30, 1996, the Company sold 606,061 of
its common shares for $950,000 (net of commissions) in private
placements and issued 100,000 shares to a certain supplier in exchange
for purchase of $200,000 of gemstones.
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<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
Results of Operations
Three Months Ended June 30, 1996
Sales for the three months ended June 30, 1996 increased $323,448 or
approximately 22% when compared to the three months ended June 30, 1995.
Management believes that the increase in sales was due to the addition
of four stores - St Croix, US Virgin Islands (copy jewelry and fine jewelry),
Monterey, California, and San Francisco, California.
As of June 30, 1995, the Company operated 13 retail copy jewelry
stores, one fine jewelry store, one handcraft and gifts store and one fine art
gallery and as of June 30, 1996, the Company operated 16 retail copy jewelry
stores, two fine jewelry stores, one handcraft and gifts store and one fine art
gallery
The Costs of goods as a percentage of revenues increased slightly from
25% for the three months ended June 30, 1995 to 26% for the three months ended
June 30, 1996; however, the cost of goods as a percentage of revenues decreased
slightly compared to the year ended December 31, 1995 (27%).
During the second quarter of 1996, selling, general and administrative
expenses increased when compared to the second quarter of 1995 by $191,546
(approximately 21%). Management believes that this increase was primarily the
result of: (i) the cost of operating four new stores; and (ii) costs associated
with the opening of two new stores during the second quarter. However, as a
percentage of sales, selling, general and administrative expenses remained
constant at 60%.
Revenues same store locations.
As of June 30, 1995, the Company operated 13 retail copy jewelry
stores, one fine jewelry store, one handcraft and gifts store and one fine art
gallery. During the three months ended June 30, 1996, revenues increased
approximately 2% from the same period in 1995.
Revenues - acquired locations.
Revenues from the Monterey stores acquired as a result of the
acquisition of Cannery Row Enterprises, Inc. increased by approximately 5%
during the three months ended June 30, 1996 as compared and to the three months
ended June 30, 1995. Management believes that this increase is primarily the
result of the opening of a new wing at the Monterey Bay Aquarium resulting in
increased foot traffic to the Cannery Row area.
- 8 -
<PAGE>
Liquidity and Capital Resources
As of June 30, 1996, the Company had $1,570,261 in cash and cash
equivalents and its current assets exceeded its current liabilities by
$3,347,584.
During 1996, the Company plans to open an additional four stores. two
of these stores opened - one in the Anchorage Mall in San Francisco (April 1996)
and the other in the Doubletree Hotel in Monterey (May 1996). The Company
determined that the final lease terms for the planned location at the Navy Pier
in Chicago were not favorable and, accordingly, the Company terminated
negotiations. In addition, while the Company executed a lease for a store in the
Stratosphere in Las Vegas, the landlord is unable to deliver the premises and it
is possible that this lease will be terminated. At present, the Company is
negotiating for locations in the Horizon Mall in Laughlin, Nevada, and the
Northport Marketplace in Fort Lauderdale, Florida. No assurance can be given as
to whether the Company will open stores at any of these locations.
Management believes that it will cost approximately $300,000 to open
these two new stores. Management believes that the cost of opening these new
store will be paid from current cash reserves.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
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
None.
- 10 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registration has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELEGANT ILLUSIONS, INC.
Dated: August 7, 1996 /s/ James Cardinal
-----------------------
James Cardinal,
Chief Executive Officer
/s/ Tamara Gear
----------------------
Tamara Gear, Treasurer
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000854941
<NAME> FDS For Elegant Illusions, Inc.
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1.000
<CASH> 1,570,261
<SECURITIES> 0
<RECEIVABLES> 105,123
<ALLOWANCES> 0
<INVENTORY> 1,692,268
<CURRENT-ASSETS> 3,438,859
<PP&E> 824,486
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,530,031
<CURRENT-LIABILITIES> 91,275
<BONDS> 0
0
0
<COMMON> 17,434
<OTHER-SE> 4,311,544
<TOTAL-LIABILITY-AND-EQUITY> 4,530,031
<SALES> 3,196,004
<TOTAL-REVENUES> 3,196,004
<CGS> 844,103
<TOTAL-COSTS> 844,103
<OTHER-EXPENSES> 2,025,752
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 326,149
<INCOME-TAX> 130,000
<INCOME-CONTINUING> 196,149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 196,149
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
