SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A-1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 March 31, 1998
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Common Stock, par value 17,155,038 Shares
$.001 per share
Transitional Small Business Format (check one); Yes _____ No __X__
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PART I. FINANCIAL INFORMATION
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 annual 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 quarter ended March 31, 1998 increased $258,179 or 13.5% when
compared to the quarter ended March 31, 1997.
Management believes that the increase in sales was due to the addition of
four locations (Gilroy, Kenosha, Tulare and St. Thomas) in 1997.
As of March 31, 1997, the Company operated 20 retail locations and as of
March 31, 1998, the Company operated 24 retail locations. Although the Company
added four stores in 1997, it closed its Pavilions store in January 1997 and
consolidated Steinbeck Lady into Steinbeck Jewelers.
The Costs of goods as a percentage of revenues decreased slightly from
30.1% in fiscal 1996 to 28.7% in fiscal 1997. Management believes that this
decrease was due to the Company's ongoing efforts to reduce costs.
During the quarter ended March 31, 1998, selling, general and
administrative expenses increased when compared to the first quarter of 1997 by
$209,339 (approximately 18.6%). As a percentage of sales, selling, general and
administrative expenses increased from approximately 59.0% during the first
quarter of 1997 to approximately 61.6% during the first quarter of 1998.
Management believes that this increase was the result of a number of factors.
One factor was the cost of operating the four new stores opened in 1997. Another
factor was labor costs. In this regard sales staff wages, as a percentage of
sales, increased from 11.2% during the first quarter of 1997 to 12.4% during the
first quarter of 1998 and management salaries, as a percentage of sales,
increased from 7.0% during the first quarter of 1997 to 8.4% during the first
quarter of 1998. Management raised labor costs to stabilize the Company's
workforce in light of the strong economic conditions in the United States over
the past year. Management believes that increased salaries will lead to a
decrease in job turnover and added revenues during the remainder of 1998.
Increased labor costs also reflects an increase in staff in anticipation of
meeting the additional administrative burdens of operating the stores to be
opened pursuant to the Company's expansion plans. The Company also increased
media advertising in the first quarter of 1998 as compared to the first quarter
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of 1997. As a percentage of sales, media advertising increased from 1.8% during
the first quarter of 1997 to 2.3% during the first quarter of 1998. This
increase in media advertising is part of the Company's long-term plan to promote
name recognition.
Revenues same store locations.
As of March 31, 1997, the Company operated 20 locations (which includes
Steinbeck Lady) that were also in operation at March 31, 1998: 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, one in Laughlin, two in St
Croix and one in Oahu. The Company's Pavilions store in Sacramento, which was
operating on March 31, 1996, closed in January 1997. Revenues from the above
mentioned 20 locations for the quarter ended March 31, 1998, decreased
approximately 10% from the same period in 1997. Management believes that this
decrease in same store revenues was due primarily to an exceptionally good first
quarter in 1997. Same store sales for the first quarter ended March 31, 1997
exceeded same store sales for the first quarter of 1996 by approximately 19%. In
this regard, during March 1997, the Company's Bourbon Street Gallery had a
single $100,000 transaction. Excluding this transaction, same store sales
decreased by 4.7% during the first quarter of 1998 when compared to the first
quarter of 1997.
In 1996, the Company adjusted some of its software in light of the year
2000 problem. Management does not believe that the year 2000 problem will have
any material adverse affect on the Company's operations or revenues.
Liquidity and Capital Resources
As of March 31, 1998, the Company had $1,336,163 in cash and cash
equivalents and its current assets exceeded its current liabilities by
$4,208,254.
In October 1997, subsequent to the opening of a new store in Gilroy,
California, the Company announced plans for a 50 store expansion over a three
year period. Pursuant to the Company's expansion plan, the Company opened three
stores (Tulare, California, Kenosha, Wisconsin and St. Thomas, U.S. Virgin
Islands) during the remainder of 1997. The Company plans to open approximately
25 of the stores over the next 19 months and anticipates opening approximately
six of these new stores in 1998. At this time, management believes, but cannot
assure, that six of these stores will be located at Birch Run, Michigan (opening
May 27, 1998); Michigan City, Indiana (opening June 2, 1998); Universal Studios
in Orlando, Florida (anticipated to open in October 1998); Ontario Mills,
California; Grapevine Mills, Texas; and Maui, Hawaii . The Company also plans to
move its Kenosha store from one location to a new location within the same mall.
The cost of opening new stores ranges from approximately $120,000 to
$140,000, depending upon a number of factors. Based upon past experience,
management anticipates that it will need approximately $ 3,500,000 to open the
planned 25 stores over the next 19 months. Factored into the anticipated amount
of funds needed to complete the planned expansion, are funds required to further
increase the Company's management and administrative staff to handle the
increased operations that will result from the planned expansion. It is
anticipated that the opening of additional new stores will be funded from
current cash reserves and revenues and, to the extent required, from bank and/or
equity financing. No assurance can be given that the Company will be able to
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secure additional bank and/or equity financing, if required. Completion of the
Company's planned store expansion is dependant on the Company's ability to
obtain adequate financing on acceptable terms. 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 an advance line of credit up to $2,000,000 from Comerica
Bank to open new stores and the Company's Subsidiary has a $350,000 revolving
line of credit from Comerica Bank for working capital purposes. These lines of
credit are collateralized by the Company's assets and the Company is required to
maintain certain financial ratios and covenants. As of March 31, 1998 and the
date hereof, no funds had been advanced on the these lines of credit.
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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: July 2, 1998 /s/ James Cardinal
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James Cardinal, Chief Executive Officer
/s/ Tamara Gear
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Tamara Gear, Treasurer
