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 September 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 September 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 nine months ended September 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 nine months ended September 30,
1996 are not necessarily indicative of the results for the entire fiscal year.
<PAGE>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------ -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .................... $1,699,110 $1,708,546
Accounts receivable .......................... 103,876 114,879
Inventory .................................... 1,369,348 1,783,191
Prepaid expenses ............................. 17,915 52,211
---------- ----------
TOTAL CURRENT ASSETS ..................... 3,190,249 3,658,827
PROPERTY AND EQUIPMENT, NET ...................... 751,181 818,824
OTHER ASSETS (including merchandise credit
of $158,127 at September 30, 1996) ............. 81,159 242,846
---------- ----------
$4,022,589 $4,720,497
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank ......................... $ 750,000 $
Income taxes payable ......................... 13,523
Accounts payable and accrued expenses ........ 119,982 95,893
---------- ----------
TOTAL CURRENT LIABILITIES ................ 869,982 109,416
NOTE PAYABLE ..................................... 100,000 20,000
DEFERRED INCOME TAXES ............................ 69,778 69,778
---------- ----------
TOTAL LIABILITIES ........................ 1,039,760 199,194
---------- ----------
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 September 30, 1996, respectively 16,728 17,434
Additional paid-in capital ................... 1,828,927 2,978,221
Retained earnings ............................ 1,137,174 1,525,648
---------- ----------
TOTAL STOCKHOLDERS' EQUITY ............... 2,982,829 4,521,303
---------- ----------
$4,022,589 $4,720,497
========== ==========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
F-1
<PAGE>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
REVENUES .......................... $ 1,430,838 $ 1,888,661
COST OF GOODS SOLD ................ 359,315 497,239
--------------- -------------
GROSS PROFIT ...................... 1,071,523 1,391,422
SELLING, GENERAL AND ADMINISTRATIVE 825,151 1,068,097
--------------- -------------
INCOME BEFORE INCOME TAXES ........ 246,372 323,325
PROVISION FOR INCOME TAXES ........ 99,537 131,000
--------------- -------------
NET INCOME ........................ $ 146,835 $ 192,325
=============== =============
WEIGHTED AVERAGE SHARES OUTSTANDING 16,728,000 17,434,000
=============== =============
NET INCOME PER COMMON SHARE ....... $ nil $ .01
=============== =============
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
F-2
<PAGE>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
REVENUES .......................... $ 4,088,222 $ 5,084,665
COST OF GOODS SOLD ................ 960,732 1,341,342
----------- -----------
GROSS PROFIT ...................... 3,127,490 3,743,323
SELLING, GENERAL AND ADMINISTRATIVE 2,506,353 3,093,849
----------- -----------
INCOME BEFORE INCOME TAXES ........ 621,137 649,474
PROVISION FOR INCOME TAXES ........ 249,300 261,000
----------- -----------
NET INCOME ........................ $ 371,837 $ 388,474
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 16,596,000 17,188,000
=========== ===========
NET INCOME PER COMMON SHARE ....... $ .02 $ .02
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
F-3
<PAGE>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................................ $ 371,837 $ 388,474
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ................................. 123,672 169,330
Merchandise credit applied to purchases ....................... 41,873
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ................. 8,139 (11,003)
(Increase) in inventory .................................... (267,957) (413,843)
(Increase) decrease in prepaid expenses .................... (6,350) (34,296)
Increase (decrease) in accounts payable and accrued expenses 3,515 (24,089)
Increase (decrease) in income taxes payable ................ 90,216 13,523
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................. 323,072 129,969
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ................................ (147,177) (232,643)
Other assets ...................................................... 2,414 (7,890)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES ................................. (144,763) (240,533)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowing from bank credit line ...................... (750,000)
Partial repayment of note payable ................................. (10,000) (80,000)
Sale of common stock .............................................. 350,000 950,000
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............................. 340,000 120,000
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................. 518,309 9,436
CASH AND CASH EQUIVALENTS BALANCE, Beginning of period ................ 435,295 1,699,110
----------- -----------
CASH AND CASH EQUIVALENTS BALANCE, End of period ...................... $ 953,604 $ 1,708,546
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
F-4
<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 September 30, 1996, the results of
operations for the three months and nine months ended September 30, 1996
and 1995, and the changes in cash flows for the nine months ended September
30, 1996 and 1995. The consolidated balance sheet as of December 31, 1995
is derived from the Company's audited financial statements. 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 nine
months period ended September 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 nine months ended September 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.
F-5
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
Results of Operations
Three Months Ended September 30, 1996
Sales for the three months ended September 30, 1996 increased $457,823 or
approximately 32% when compared to the three months ended September 30, 1995.
Management believes that the increase in sales was due to the addition of
four stores - two in St Croix, US Virgin Islands (one copy jewelry and one fine
jewelry), one in the Anchorage Mall in San Francisco, and one in the DoubleTree
Hotel in Monterey, California.
As of September 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 September 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 September 30, 1995 to 26% for the three months ended
September 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 third quarter of 1996, selling, general and administrative
expenses increased when compared to the third quarter of 1995 by $242,946
(approximately 29%). Management believes that this increase was primarily the
result of: (i) the cost of operating four new stores that opened since the third
quarter of 1995; and (ii) costs associated with the opening of two new stores
during 1996. However, as a percentage of sales, selling, general and
administrative expenses decreased from approximately 58% during the third
quarter of 1995 to approximately 57% during the third quarter of 1996.
Revenues same store locations.
As of September 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 September 30, 1996, revenues increased
approximately 11% from the same period in 1995. Management believes that this
increase was due to the improved economic climate, increased advertising,
improved weather conditions on the east coast and new artists added to the
Gallery inventory.
Revenues - acquired locations.
Revenues from the Monterey stores acquired as a result of the acquisition
of Cannery Row Enterprises, Inc. decreased by approximately 3% during the three
months ended September 30, 1996 as compared and to the three months ended
September 30, 1995. Management believes that this decrease is primarily due to
- 8 -
<PAGE>
the fact that the area experienced above average weather conditions during the
third quarter of 1995 which did not repeat during the third quarter of 1996.
Liquidity and Capital Resources
As of September 30, 1996, the Company had $1,708,546 in cash and cash
equivalents and its current assets exceeded its current liabilities by
$3,549,411. In addition, the balance on the Company's $100,000 note is now down
to $20,000.
In November 1996, the Company opened a new copy jewelry store in the
Horizon Mall in Laughlin, Nevada. While the Company executed a lease for a store
in the Stratosphere in Las Vegas, the landlord was unable to deliver the
premises. This lease was terminated and the landlord has reimbursed the Company
its expenses.
During 1997, the Company plans to open an additional three stores. At
present, the Company is negotiating for a location at Universal Studios in
Orlando, Florida, the Horizon Mall in Gilroy, California, 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 $450,000 to open these
three new stores. Management believes that the cost of opening these new store
will be paid from current cash reserves.
- 9 -
<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: November 13, 1996 By: /s/James Cardinal
-----------------
James Cardinal,
Chief Executive Officer
/s/Tamara Gear
--------------
Tamara Gear, Treasurer
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,708,546
<SECURITIES> 0
<RECEIVABLES> 114,879
<ALLOWANCES> 0
<INVENTORY> 1,783,191
<CURRENT-ASSETS> 3,658,827
<PP&E> 818,824
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,720,497
<CURRENT-LIABILITIES> 109,416
<BONDS> 0
0
0
<COMMON> 17,434
<OTHER-SE> 4,503,869
<TOTAL-LIABILITY-AND-EQUITY> 4,720,497
<SALES> 5,084,665
<TOTAL-REVENUES> 5,084,665
<CGS> 1,341,342
<TOTAL-COSTS> 1,341,342
<OTHER-EXPENSES> 3,093,849
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 649,474
<INCOME-TAX> 261,000
<INCOME-CONTINUING> 388,474
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 388,474
<EPS-PRIMARY> .02
<EPS-DILUTED> .00
</TABLE>
