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, 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.
(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.)
542 Lighthouse Ave., Suite 5, Pacific Grove, CA 93950
(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 March 31, 1997
Common Stock, par value 17,434,338 Shares
$.001 per share
Transitional Small Business Format (check one); Yes No X
1
<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, 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 months ended March 31, 1997 are not
necessarily indicative of the results for the entire fiscal year.
2
<PAGE>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIESCONSOLIDATED
CONDENSED BALANCE SHEETS
March 31, December 31,
1997 1996
---- ----
(Unaudited) (Derived from
Audited
Financial
Statements)
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............ $2,037,350 $1,886,297
Accounts receivable .................. 176,259 190,270
Inventory ............................ 1,945,240 1,990,174
Prepaid expenses ..................... 44,434 45,643
---------- ----------
TOTAL CURRENT ASSETS 4,203,283 4,112,384
PROPERTY AND EQUIPMENT, NET .................. 869,355 884,707
OTHER ASSETS ....................... 82,726 85,853
---------- ----------
$5,155,364 $5,082,944
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $115,401 $92,827
Income taxes payable ................ 57,900 71,915
------ ------
TOTAL CURRENT LIABILITIES ... 173,301 164,742
NOTE PAYABLE ................................ -- 20,000
DEFERRED INCOME TAXES ....................... 95,871 95,871
------ ------
TOTAL LIABILITIES ........... 269,172 280,613
------- -------
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 ................... 1,890,537 1,806,676
--------- ---------
TOTAL STOCKHOLDERS' EQUITY .. 4,886,192 4,802,331
--------- ---------
$5,155,364 $5,082,944
========== ==========
3
<PAGE>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
1997 1996
--------- ---------
REVENUES ...................................... $1,907,399 $1,379,614
COST OF GOODS SOLD ............................. 579,730 429,287
--------- ---------
GROSS PROFIT ................................... 1,327,669 950,327
EXPENSES
Selling, general and administrative .... 1,125,186 815,919
Depreciation and amortization .......... 62,722 54,830
--------- ---------
TOTAL EXPENSES ................. 1,187,908 870,749
--------- ---------
INCOME BEFORE INCOME TAXES ..................... 139,761 79,578
PROVISION FOR INCOME TAXES ..................... 55,900 31,800
----------- ----------
NET INCOME ....................................$ 83,861 $ 47,778
=========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING ............17,434,000 16,930,000
=========== ==========
NET INCOME PER COMMON SHARE ...................$ .00 $ .00
=========== ===========
4
<PAGE>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
1997 1996
---------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...........................$ 83,861 $ 47,778
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 62,722 54,830
Changes in operating assets
and liabilities:
(Increase) Decrease in:
Accounts receivable ................. 14,011 27,578
Inventory ............................44,934 (78,361)
Prepaid expenses ..................... 1,209 (10,421)
Increase (Decrease in):
Accounts payable and accrued
expenses ........................... 22,574 21,650
Income taxes payable ................(14,015) 31,800
------- ------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ............215,296 94,854
-------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment .......(46,288) (62,156)
Deposits ................................. 2,045 (5,750)
------- -------
NET CASH USED BY
INVESTING ACTIVITIES .............(44,243) (67,906)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank credit line, net ...... -- 750,000
Repayment of borrowing from bank
credit line............................. -- (750,000)
Repayment of note payable ................(20,000) (20,000)
Sale of common stock ..................... -- 950,000
------- -------
NET CASH PROVIDED BY
FINANCING ACTIVITIES ..............(20,000) 930,000
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....... 151,053 956,948
CASH AND CASH EQUIVALENTS BALANCE,
Beginning of period .....................1,886,297 1,699,110
---------- ---------
CASH AND CASH EQUIVALENTS BALANCE,
End of period .........................$ 2,037,350 $ 2,656,058
=========== ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid .........................$ 291 $ 2,575
Income taxes paid .....................$ 69,914 $ --
5
<PAGE>
ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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 months ended March 31, 1997
are not necessarily indicative of the results to be expected for the full fiscal
year.
6
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Results of Operations
Sales for the three months ended March 31, 1997 increased $527,785 or
approximately 38% when compared to the three months ended March 31, 1996.
Management believes that the increase in sales was due to the addition
of three locations (San Francisco and Monterey, California, and Laughlin,
Nevada).
As of March 31, 1996, the Company operated 18 retail locations and as
of March 31, 1997, the Company operated 20 retail locations. An additional
location was opened in April 1997.
The Costs of goods as a percentage of revenues decreased slightly from
approximately 31% during the three months ended March 31, 1996 to 30% during the
three months ended March 31, 1997.
During the three months ended March 31, 1997, selling, general and
administrative expenses increased when compared to the three months ended March
31, 1996 by $309,267 (approximately 38%). Management believes that this increase
was primarily the result of the cost of opening and operating three new stores.
However, as a percentage of sales, selling, general and administrative expenses
remained unchanged between the two periods at approximately 59%.
Revenues same store locations.
As of March 31, 1996, the Company operated 18 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, two in St Croix and one in
Oahu. Revenues from these locations for the three months ended March 31, 1997,
which includes revenues from the Pavilions Sacramento store that closed in
January 1997, increased approximately 15% from the same period in 1996.
Excluding the Pavilions Sacramento store from same store operations, same store
revenues increased approximately 19% during the three months ended March 31,
1997 from the same period in 1996.
Liquidity and Capital Resources
As of March 31, 1997, the Company had $2,037,350 in cash and cash
equivalents and its current assets exceeded its current liabilities by
$4,029,982.
7
<PAGE>
In April 1997, the Company opened a new copy jewelry store in Gilroy,
California. During the second and third quarters of 1997, the Company plans to
open two additional copy jewelry stores. At this time, management believes, but
cannot assure, that these stores will be located in Bellport, New York, and
Kenosha, Wisconsin.
Management believes that it will cost approximately $600,000 to open
these two new stores. Management believes that the cost of opening these new
stores will be paid from current cash reserves. 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 March 31, 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.
8
<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
In April 1997, the Company opened a new copy jewelry store in
Gilroy, California.
Item 6. Exhibits and Reports on Form 8-K
None.
9
<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 12, 1997 /s/....................
James Cardinal,
Chief Executive Officer
/s/...................
Tamara Gear, Treasurer
10
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<NAME> Elegant Illusions
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<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1.000
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0
0
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<INCOME-TAX> 55,900
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