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 March 31, 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: 33-42851-D
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 Stock, as of the latest practicable date.
Class Outstanding at March 31, 1996
Common Stock, par value 17,334,338 Shares
$.001 per share
<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 months ended March 31, 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 months ended March 31, 1996 are not
necessarily indicative of the results for the entire fiscal year.
<PAGE>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, March 31,
1995 1996
------------------ ------------------
(Derived from (Unaudited)
Audited
Financial
Statements)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,699,110 $ 2,656,058
Accounts receivable 103,876 76,298
Inventory 1,369,348 1,447,709
Prepaid expenses 17,915 28,336
------------------ ------------------
TOTAL CURRENT ASSETS 3,190,249 4,208,401
------------------ ------------------
PROPERTY AND EQUIPMENT, NET 751,181 762,813
------------------ ------------------
OTHER ASSETS 81,159 82,603
------------------ ------------------
$ 4,022,589 $ 5,053,817
================== ==================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Note payable to bank $ 750,000 $ 750,000
Accounts payable and accrued expenses 119,982 188,167
Income taxes payable 13,200
------------------ ------------------
TOTAL CURRENT LIABILITIES 869,982 951,367
NOTE PAYABLE 100,000 80,000
DEFERRED INCOME TAXES 69,778 69,778
------------------ ------------------
TOTAL LIABILITIES 1,039,760 1,101,145
------------------ ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - authorized 20,000,000
shares, $.001 par value, issued and
outstanding 16,728,277 and 17,334,338
on December 31, 1995 and March 31,
1996, respectively 16,728 17,334
Additional paid-in capital 1,828,927 2,778,321
Retained earnings 1,137,174 1,157,017
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 2,982,829 3,952,672
------------------ ------------------
$ 4,022,589 $ 5,053,817
================== ==================
<PAGE>
<CAPTION>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
1995 1996
------------------ ------------------
<S> <C> <C>
REVENUES $ 1,164,442 $ 1,379,614
COST OF GOODS SOLD 234,593 366,798
------------------ ------------------
GROSS PROFIT 929,849 1,012,816
SELLING, GENERAL AND ADMINISTRATIVE 780,234 979,773
------------------ ------------------
INCOME BEFORE INCOME TAXES 149,615 33,043
PROVISION FOR INCOME TAXES 59,800 13,200
------------------ ------------------
NET INCOME $ 89,815 $ 19,843
================== ==================
WEIGHTED AVERAGE SHARES OUTSTANDING 16,352,000 16,930,000
================== ==================
NET INCOME PER COMMON SHARE $ .01 $ .00
================== ==================
<PAGE>
<CAPTION>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
1995 1996
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 89,815 $ 19,843
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 41,236 54,830
Changes in operating assets and liabilities:
Decrease in receivables 4,311 27,578
(Increase) in inventory (122,242) (78,361)
(Increase) decrease in prepaid expenses 60 (10,421)
Increase in accounts payable and accrued expenses 20,390 68,185
Increase in income taxes payable 34,600 13,200
------------------ ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 68,170 94,854
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (50,850) (62,156)
Deposits (5,750)
------------------ ------------------
NET CASH USED BY INVESTING ACTIVITIES (50,850) (67,906)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank credit line, net 750,000
Repayment of borrowing from bank credit line (750,000)
Partial repayment of note payable (20,000)
Sale of common stock 50,000 950,000
------------------ ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 50,000 930,000
------------------ ------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 67,320 956,948
CASH AND CASH EQUIVALENTS BALANCE, Beginning of period 435,295 1,699,110
------------------ ------------------
CASH AND CASH EQUIVALENTS BALANCE, End of period $ 502,615 $ 2,656,058
------------------ ------------------
------------------ ------------------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 2,603 $ 2,575
Income taxes paid $ 25,200 $
<PAGE>
</TABLE>
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 March 31, 1996, the results of operations for the three
months ended March 31, 1996 and 1995, and the changes in cash flows for the
three months ended March 31, 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
three month period ended March 31, 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 three months ended March 31, 1996, the Company sold an aggregate
606,061 of its common shares for $950,000 (net of commissions) in private
placements.
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
Results of Operations
Three Months Ended March 31, 1996
Sales for the three months ended March 31, 1996 increased $215,172 or
approximately 18% when compared to the three months ended March 31, 1995.
Management believes that the increase in sales was due to the addition of two
locations in St. Croix in the U.S. Virgin Islands.
As of March 31, 1995, the Company operated 16 stores consisting of 13
retail copy jewelry stores, one fine jewelry store, one handcraft and gifts
store and one fine art gallery. As of March 31, 1996, the Company also operated
one additional retail copy jewelry store and one additional fine jewelry store.
The Costs of goods as a percentage of revenues increased from 20% in the
first quarter of 1995 to 27% in the first quarter of 1996. Although there was an
increase over the comparable period, the ratio was the same during the first
quarter of fiscal 1996 as it was for the fiscal year ended December 31 1995.
During the first quarter of 1996, selling, general and administrative
expenses increased when compared to the first quarter of 1995 by $199,539
(approximately 26%). Management believes that this increase was primarily the
result of: (i) the cost of operating two additional locations; (ii) investment
in infrastructure for a four store expansion during the first quarter of 1996
(see "Liquidity" below); and (iii) upgrading computer software and accounting
systems to accommodate planned and future expansion. Management notes that, in
1994 and 1995, store expansion was carried out in the third and fourth quarters
rather than the first quarter. Moreover, historically, the Company's first
quarter is its quarter of lowest revenues.
Although revenues increased during the first quarter ended March 31, 1996
when compared to the quarter ended March 31, 1995, profits decreased by $69,972
(approximately 78%). Management believes that this significant decrease resulted
from increased selling, general and administrative expenses and costs of goods
as discussed above and decrease sales at the Company's two New Orleans stores as
discussed below.
Revenues same store locations. As of March 31, 1995, the Company operated
16 locations: two in New Orleans, three in Monterey, two in Sacramento, one in
San Diego, one in Santa Barbara, one in San Francisco, one in Palm Springs, one
in Salt Lake City, one in Portland, one in Branson one in Minneapolis and one in
Oahu. Revenues from these locations for the first quarter of 1996 decreased
approximately 9% from the same period in 1995. Management believes this decrease
was primarily due to a drop in revenues in the Company's two New Orleans stores;
copy jewelry (17%) and fine art (53%). Management believes that these drops in
revenues resulted from extreme weather conditions in the East that affected the
number of tourists that visited New Orleans and the fact that Bourbon Street
Gallery, the Company's fine art gallery, held a grand opening event in March
1995 that effectively doubled the revenues for the first quarter of 1995.
Excluding the two New Orleans locations, revenues for same store locations
increased by approximately 6%.
<PAGE>
Liquidity and Capital Resources
As of March 31, 1996, the Company had $2,656,058 in cash and cash
equivalents and its current assets exceeded its current liabilities by
$3,257,034.
During 1996, the Company plans to open an additional four stores. One of
these stores opened in April 1996 and is located in the Anchorage Mall in San
Francisco. The Company has signed a lease for a store in the Doubletree Hotel in
Monterey and is negotiating leases for stores in the Stratosphere in Las Vegas
and the Navy Pier in Chicago.
Management believes that it will cost approximately $600,000 to open these
four new stores. Management believes that the cost of opening these new store
will be paid from current cash reserves.
<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.
<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: May 17, 1996 s/ James Cardinal
------------------
James Cardinal,
Chief Executive Officer
s/ Tamara Gear
------------------
Tamara Gear, Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 854941
<NAME> Elegant Illusions, Inc. and Subsidairies
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 2,656,058
<SECURITIES> 0
<RECEIVABLES> 76,298
<ALLOWANCES> 0
<INVENTORY> 1,447,709
<CURRENT-ASSETS> 4,208,401
<PP&E> 762,813
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,053,817
<CURRENT-LIABILITIES> 951,367
<BONDS> 0
0
0
<COMMON> 17,334
<OTHER-SE> 2,778,321
<TOTAL-LIABILITY-AND-EQUITY> 5,053,817
<SALES> 1,379,614
<TOTAL-REVENUES> 1,379,614
<CGS> 366,798
<TOTAL-COSTS> 366,798
<OTHER-EXPENSES> 979,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 33,043
<INCOME-TAX> 13,200
<INCOME-CONTINUING> 19,843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
