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, 1997
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.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 88-0282654
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
542 Lighthouse Ave., Suite 5, Pacific Grove, CA 93950
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(Address of principal executive offices)
Issuer's telephone number, including area code:(408) 649-1814
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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, 1997
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Common Stock, par value 17,434,338 Shares
$.001 per share
Transitional Small Business Format (check one); Yes _____ No __X__
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<PAGE>
PART I. FINANCIAL INFORMATION
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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, 1997.
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, 1996.
The results reflected for the three and nine months ended September 30,
1997 are not necessarily indicative of the results for the entire fiscal year.
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<PAGE>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1997 1996
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,284,469 $ 1,886,297
Accounts receivable 294,461 190,270
Prepaid income taxes 184,634
Inventory 2,222,548 1,990,174
Prepaid expenses 105,223 45,643
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TOTAL CURRENT ASSETS 4,091,335 4,112,384
PROPERTY AND EQUIPMENT, NET 1,166,327 884,707
OTHER ASSETS 82,188 85,853
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$ 5,339,850 $ 5,082,944
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 99,308 $ 92,827
Income taxes payable 71,915
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TOTAL CURRENT LIABILITIES 99,308 164,742
NOTE PAYABLE 20,000
DEFERRED INCOME TAXES 95,871 95,871
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TOTAL LIABILITIES 195,179 280,613
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - authorized 30,000,000
shares, $.001 par value,issued and
outstanding 17,434,338 shares 17,434 17,434
Additional paid-in capital 2,978,221 2,978,221
Retained earnings 2,149,016 1,806,676
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TOTAL STOCKHOLDERS' EQUITY 5,144,671 4,802,331
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$ 5,339,850 $ 5,082,944
============ ============
See accompanying Notes to Consolidated Condensed Financial Statements.
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<PAGE>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
1997 1996
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REVENUES $ 2,134,037 $ 1,888,661
COST OF GOODS SOLD 708,584 568,472
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GROSS PROFIT 1,425,453 1,320,189
SELLING, GENERAL AND ADMINISTRATIVE 1,185,931 996,864
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INCOME BEFORE INCOME TAXES 239,522 323,325
PROVISION FOR INCOME TAXES 96,000 131,000
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NET INCOME $ 143,522 $ 192,325
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WEIGHTED AVERAGE SHARES OUTSTANDING 17,434,000 17,434,000
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NET INCOME PER COMMON SHARE $ .01 $ .01
============ ============
See accompanying Notes to Consolidated Condensed Financial Statements.
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<PAGE>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
1997 1996
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REVENUES $ 5,998,393 $ 5,084,665
COST OF GOODS SOLD 1,857,812 1,544,698
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GROSS PROFIT 4,140,581 3,539,967
SELLING, GENERAL AND ADMINISTRATIVE 3,569,241 2,890,493
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INCOME BEFORE INCOME TAXES 571,340 649,474
PROVISION FOR INCOME TAXES 229,000 261,000
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NET INCOME $ 342,340 $ 388,474
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WEIGHTED AVERAGE SHARES OUTSTANDING 17,434,000 17,188,000
============ ============
NET INCOME PER COMMON SHARE $ .02 $ .02
============ ============
See accompanying Notes to Consolidated Condensed Financial Statements.
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<PAGE>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 342,340 $ 388,474
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 211,246 169,330
Changes in operating assets and liabilities:
(Increase) Decrease in:
Accounts receivable (104,191) 30,870
Inventory (232,374) (413,843)
Prepaid expenses (59,580) (34,296)
Increase (Decrease) in:
Accounts payable and accrued expenses 6,481 (24,089)
Income taxes payable (256,549) 13,523
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NET CASH PROVIDED BY OPERATING ACTIVITIES (92,627) 129,969
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (489,620) (232,643)
Other assets 419 (7,890)
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NET CASH USED IN INVESTING ACTIVITIES (489,201) (240,533)
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CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowing from bank credit line (750,000)
Repayment of note payable (20,000) (80,000)
Sale of common stock 950,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES (20,000) 120,000
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NET INCREASE IN CASH AND CASH EQUIVALENTS (601,828) 9,436
CASH AND CASH EQUIVALENTS BALANCE,
Beginning of period 1,886,297 1,699,110
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CASH AND CASH EQUIVALENTS BALANCE,
End of period $ 1,284,469 $ 1,708,546
============ ============
See accompanying Notes to Consolidated Condensed Financial Statements.
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<PAGE>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1. COMMENTS
The accompanying unaudited consolidated condensed financial statements, which
are for interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated condensed
financial statements should be read in conjunction with the consolidated
financial statements and the footnotes thereto contained in the Annual Report on
Form 10-KSB for the year ended December 31, 1996 of Elegant Illusions, Inc. (the
"Company"), as filed with the Securities and Exchange Commission. The December
31, 1996 balance sheet was derived from audited consolidated financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the financial statements. The
results of operations for the three and nine months ended September 30, 1997 are
not necessarily indicative of the results to be expected for the full fiscal
year.
Reclassifications - Certain 1996 balances have been reclassified to conform with
1997 presentation.
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<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
Cautionary Statement on Forward-Looking Statements
Except for the historical information contained herein, certain of the
matters discussed in this quarterly report are "forward-looking statements," as
defined in Section 21E of the Securities Exchange Act of 1934, which involve
certain risks and uncertainties, which could cause actual results to differ
materially from those discussed herein including, but not limited to, risks
relating to changing economic conditions, the Company's expansion plans and
competitive pressures.
The Company cautions readers that any such forward-looking statements are
based on management's current expectations and beliefs but are not guarantees of
future performance. Actual results could differ materially from those expressed
or implied in the forward-looking statements.
Results of Operations
Sales for the three months ended September 30, 1997 increased $245,376 or
approximately 13.0% when compared to the three months ended September 30, 1996.
Management believes that the increase in sales was due to the fact that
the Company opened the following four new locations subsequent to the quarter
ended September 30, 1996: Laughlin, Nevada (November 1996); Gilroy, California
(April 1997); Kenosha, Wisconsin (June 1997); and Tulare, California (September
1997).
As of September 30, 1996, the Company operated 20 retail locations and as
of September 30, 1997, the Company operated 23 retail locations.
The Costs of goods as a percentage of revenues increased from
approximately 30% during the three months ended September 30, 1996 to 33% during
the three months ended September 30, 1997.
During the three months ended September 30, 1997, selling, general and
administrative expenses increased when compared to the three months ended
September 30, 1996 by $189,067 (approximately 19%). Management believes that
this increase was primarily the result of (1) operating the Laughlin, Nevada
location, which opened during the quarter ended September 30, 1996, for the full
quarter ended September 30, 1997; (2) opening and operating the new locations in
Kenosha, Wisconsin, Gilroy, California and Tulare, California; (3) replacement
of non-performing store managers and training of their successors and (4) the
costs associated with new public relations and advertising activities. With
regard to opening and commencing operations at new stores, management notes that
all one-time expenses incurred in such activities are expensed at the time of
such activities and are not amortized or depreciated. As a percentage of sales,
selling, general and administrative expenses increased from approximately 53%
during the three months ended September 30, 1996 to approximately 56% during the
three months ended September 30, 1997.
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<PAGE>
Revenues same store locations.
As of September 30, 1996, the Company operated 19 locations that were also
in operation at September 30, 1997: two in New Orleans, four in Monterey, one in
Sacramento, one in San Diego, one in Santa Barbara, two in San Francisco, one in
Palm Springs, one in Salt Lake City, one in Portland, one in Branson, one in
Minneapolis, two in St Croix and one in Oahu. The Company's Pavilions store in
Sacramento, which was operating on September 30, 1996, closed in January 1997.
Revenues from the above mentioned 19 locations for the three months ended
September 30, 1997, decreased approximately 10% from the same period in 1996.
Management believes that this decrease in same store revenues was due, in part,
to the unusually good weather conditions for the time of year. The Company's
non-tourist area locations depend, to a significant extent, on foot traffic. The
better than average weather adversely affected foot traffic. Management believes
that the decrease compared to the comparable 1996 quarter also was due, in part,
to the fact that, during the 1996 quarter, the Company's four Monterey locations
experienced greater than usual revenues due to the activities surrounding the
opening of the new portion of the nearby Monterey Bay Aquarium.
Liquidity and Capital Resources
As of September 30, 1997, the Company had $1,284,469 in cash and cash
equivalents and its current assets exceeded its current liabilities by
$4,181,094.
During the quarter ended September 30, 1997, the Company opened a new copy
jewelry store located in Tulare, California.
The Company has signed a lease for a location at Port of Sale, St. Thomas,
U.S. Virgin Islands and anticipates that this location will open in mid December
1997.
The Company also has signed a lease with Universal Studios Florida as one
of a select few specialty shops to operate at the popular entertainment resort.
The store will be prominently located on Universal City's "City Walk," a
dynamic, new, high-energy entertainment complex, billed as the "Gateway" to the
entire Universal City Orlando, Florida resort. The store opening in Universal
City Florida is part of the Company's strategic plan to locate its new stores in
unique shopping venues with the potential for greater than average growth and
attention. The new store is scheduled to open in October 1998.
Management believes that it will cost approximately $375,000 to open these
two new stores. Management believes that the cost of opening these new stores
will be paid from current cash reserves.
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<PAGE>
The Company plans a 50 store expansion. To date, the Company has opened
one store (Tulare, California) and anticipates opening a second store (Port of
Sale, St. Thomas, U.S. Virgin Islands) in December 1997 under this expansion
plan. The Company is funding the opening of these two locations from current
cash reserves. However, the Company is exploring possible equity funding options
to finance most of the remainder of its expansion plan. If the Company is able
to raise sufficient funds, management believes that the Company will be able to
open the remaining 48 new stores over a 30 month period.
No assurance can be given that the Company will be able to raise the funds
required for the 50 store expansion. In addition, no assurance can be given as
to the actual number or location of stores that the Company will open in the
future.
The Company has a $1,000,000 line of credit with a bank effective December
1996 due on demand. Interest is at annual base rate as announced by the bank
(initial base rate was 8.25%) plus 1.75%. This line of credit is collateralized
by the Company's accounts receivable, inventory and equipment. The Company also
is required to maintain certain financial ratios and covenants. As of September
30, 1997 and the date hereof, no funds had been advanced on the line of credit.
As of the date hereof, the Company is in compliance with all financial ratios
and covenants.
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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
The Company recently established a site on the internet.
The internet address is: www.copyjewels.com.
Item 6. Exhibits and Reports on Form 8-K
None.
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<PAGE>
SIGNATURES
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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, 1997 /s/ James Cardinal
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James Cardinal, Chief Executive Officer
/s/ Tamara Gear
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Tamara Gear, Treasurer
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<ARTICLE> 5
<CIK> 0000854941
<NAME> Elegant Illusions
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 1,284,469
<SECURITIES> 0
<RECEIVABLES> 294,461
<ALLOWANCES> 0
<INVENTORY> 2,222,548
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<PP&E> 1,166,327
<DEPRECIATION> 0
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<CURRENT-LIABILITIES> 99,308
<BONDS> 0
0
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<COMMON> 17,434
<OTHER-SE> 5,127,237
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<CGS> 1,857,812
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<LOSS-PROVISION> 0
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<INCOME-PRETAX> 571,340
<INCOME-TAX> 229,000
<INCOME-CONTINUING> 342,340
<DISCONTINUED> 0
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