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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended January 26, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _______ to _______
Commission file number: 33-42701
PREMIER CONCEPTS, INC.
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(Name of Small Business Issuer in its Charter)
Colorado 84-1186026
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(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification number
3033 South Parker Road, Suite 120, Aurora, Colorado 80014
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (303) 338-1800
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of Class
--------------
None
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 Issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The Issuer's revenues for fiscal year ended January 26, 1997 were $9,773,700.
As of April 8, 1997, the aggregate market value of the Common Stock of the
Issuer based upon the closing bid price of the Common Stock as quoted on the
OTC Electronic Bulletin Board held by non-affiliates of the Issuer was
$1,255,150. As of April 8, 1997, 560,167 shares of Common Stock of the Issuer
were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
The Registrant incorporates by this reference the following documents:
Part III
Item 9. Directors, Executive Officers, Promotions and Control Persons,
Compliance with Section 16(a) of the Exchange Agreement
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
The foregoing are incorporated by reference from the Registrant's
Definitive Proxy Statement relating to its Annual Meeting of Shareholders
which will be filed as an amendment within 120 days of January 26, 1997.
Item 13. Exhibits
1. Incorporated by reference from the Company's Registration Statement
on Form SB-2; SEC File No. 333-08741.
2. Incorporated by reference from the Company's Registration Statement
on Form SB-2; SEC File No. 333-19901.
3. Incorporated by reference from the Company's Registration Statement
on Form S-1; SEC File No. 33-42701.
4. Incorporated by reference from the Company's Current Report on Form
8-K dated March 3, 1994, as amended on January 23, 1995.
5. Incorporated by reference from the Company's Current Report on Form
8-K dated February 16, 1995.
6. Incorporated by reference from the Company's Annual Report on Form
10-KSB for the year ended December 31, 1994.
7. Incorporated by reference from the Company's Annual Report on
Form 10-KSB for the fiscal year ended January 28, 1996.
FORWARD-LOOKING STATEMENTS
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In addition to historical information, this Annual Report contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and are thus prospective. The forward-looking
statements contained herein are subject to certain risks and uncertainties
that could cause actual results to differ materially from those reflected in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, competitive pressures, changing economic
conditions, those discussed in the Section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and other
factors, some of which will be outside the control of the Company. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's analysis only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements
to reflect events or circumstances that arise after the date hereof. Readers
should refer to and carefully review the information in future documents the
Company files with the Securities and Exchange Commission.
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PART I
BUSINESS
OVERVIEW
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Operating under the name "Impostors," Premier Concepts, Inc. (the
"Company") specializes in the marketing and retailing of high-end reproduction
jewelry ("faux jewelry") and 14 karat gold jewelry with cubic zirconia and
other synthetic stones. Through its national chain of 35 currently operating
retail stores, the Company sells jewelry that emulates classic fine jewelry as
well as pieces designed by famous jewelers such as Tiffany & Co.(-Registered
Mark-), Cartier(-Registered Mark-), Bulgari(-Registered Mark-) and Harry
Winston. The Company's product line also includes replicas of jewelry owned by
Princess Diana, The Duchess of Windsor, Elizabeth Taylor and other
celebrities. The Company's faux jewelry is created with layered gold, cubic
zirconia and Austrian crystal to simulate the look of fine jewelry. In June
1996, the Company introduced a new collection of genuine sterling silver
jewelry featuring semi-precious and synthetic stones. The Company's products
are purchased from several domestic vendors and from vendors in China,
England, Hong Kong, Italy, Korea, Spain, Taiwan and Thailand.
The Impostors stores are designed to match the elegant look of the
Company's products and to provide customers with the feeling of shopping in an
upscale, fine jewelry environment. The Company's stores are located in
shopping malls and tourist locations. Currently, the Company's stores are
located in Southern California, Northern California, the states of Arizona,
Colorado, Florida, Louisiana, Maryland, Missouri, Nevada, New Jersey,
Washington and in the Washington, D.C. area. The largest and most visible
store is located in the prime retail area of San Francisco's Union Square.
Since August 30, 1996, the Company opened nine additional retail locations,
bringing the current total to 35 stores. In addition, the Company has entered
into leases for four new retail stores in California, Florida, and Washington,
D.C., scheduled to open over the next four months.
BUSINESS STRATEGY
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In March 1994, the Company acquired out of bankruptcy substantially all
of the assets and assumed certain liabilities associated with the operation of
a nationwide chain of 27 faux jewelry stores which were then operating under
the trademark "Impostors." In the months following the Company's entry into
the faux jewelry industry, results of operations continued to deteriorate
principally due to the continuing burden of excessive operating and overhead
expenses, pre-petition and post-petition bankruptcy liabilities, the
unprofitability of certain stores, as well as the continuation of ineffective
marketing and merchandizing strategies. In June 1994, the Company hired a new
president, Sissel B. Greenberg, who immediately began implementing a
transition plan calculated to reverse the negative impacts of the Company's
predecessor's ineffective business strategy. In furtherance of the turnaround
effort, the Company has reduced overhead by moving its corporate offices from
San Francisco to Denver, closed five stores due to unprofitable operations,
and one store due to an expired lease, reduced debt through negotiated
settlements, acquired three stores and opened eleven new stores and
implemented a new merchandizing strategy. These actions have improved the
Company's results of operations from an operating loss of $886,667 for the
13-month period ended January 29, 1995 to an operating loss of $37,298 for the
fiscal year ended January 28, 1996 to operating income of $326,439 for the
fiscal year ended January 26, 1997.
With its turnaround strategy in place, Premier believes that it has an
opportunity to become a leader in the specialty retailing segment of the
market for faux and reproduction jewelry and related accessory items through a
combination of internal growth and acquisitions. Its plans include adding new
stores and remodeling existing stores, development of new marketing channels
including multimedia and direct mail, and the marketing of its high-end
jewelry reproductions and store concept internationally through licensing and
distribution arrangements.
PRINCIPAL PRODUCTS
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Since inception, Impostors' merchandising strategy has evolved through
several phases. Initially, the concept was based on the marketing and
retailing of jewelry representing faux copies of expensive fine and designer
jewelry. However, in 1993, when AFJ filed for Chapter 11 protection, Imposters
redirected its focus to present the merchandise in a theme oriented style and
focusing on more trendy fashion jewelry. Price points were significantly
lowered for a day-in, day-out value. A significant decline in revenues and
margins resulted from this program. As part of the turnaround plan, the
merchandise has been refocused to designer and fine jewelry inspired faux
jewelry, with more emphasis on 14 karat gold and most recently, genuine
sterling silver.
The Company's products are comprised of approximately 60% fine jewelry
reproductions and emulations of merchandise inspired by classic designers such
as Cartier(-Registered Mark-), Tiffany & Co.(-Registered Mark-), Bulgari(-
Registered Mark-) and Harry Winston, and approximately 40% of 14 karat gold
featuring cubic zirconia and other synthetic stones. The jewelry ranges from
solitaire rings and faux pearl necklaces to earrings, pendants and bracelets.
Since the Company's products are set in layered 18 karat gold over jewelers
bronze or 18 karat gold over sterling silver, the jewelry can be offered at
substantially less cost than the original pieces. The use of cubic zirconia
and other laboratory grown stones offers a more affordable product by
emulating the look and feel of expensive gemstone jewelry. The Company
recently introduced a collection of genuine sterling silver with semi-precious
and synthetic stones.
The Company offers approximately 3,000 different jewelry items, with none
representing more than 10% of the Company's total annual sales. As a group, 14
karat gold items constitute the largest classification, representing 40% of
total inventory. Throughout the year, individual stores offer between 1,000
and 2,000 different pieces, with certain specialty items being added from time
to time for seasonal or other marketing purposes.
Most of the Company's products are selected by the Company from existing
inventory offered by vendors. However, from time to time the Company purchases
exclusive items that are manufactured under special order for the Company.
Because the Company's products are high-quality emulations of classic fine
jewelry designs that change little from year to year, the Company has not
experienced significant problems associated with inventory obsolescence.
REMODELING AND EXPANSION STRATEGY
- ---------------------------------
The Company has developed a new interior design to match the elegant look
of its products and to provide its customers with the feeling of shopping in a
high-end, fine jewelry environment. During 1995, the Company completed one
interior remodel of an existing store in San Francisco, California. During
1996, the Company completed three remodelings. In addition, the Company's new
stores will incorporate its new interior design.
The Company plans to remodel six additional stores over the next
12 months subject to the availability of working capital, at an average
estimated cost of $40,000 per store. Additional remodeling activity will
depend upon the availability of working capital from future operations, of
which there can be no assurance. The Company also plans to open six to eight
new Impostors stores in existing and new markets over the next 12 months.
Since August 30, 1996, the Company has opened eleven additional retail stores
and four more are planned in California, Florida and Washington, D.C., and are
scheduled to open over the next four months. Other potential real estate sites
in Florida, Massachusetts, Nevada and New York are currently being evaluated,
although to date no leases covering additional new locations have been
executed.
In selecting and evaluating new sites, the Company has developed criteria
which consider local population demographics, customer base, sales per square
foot of other retailers in the area, and most significantly, location. The
Company focuses on centers and malls with a heavy tourist trade. Absent a high
tourist component, a regional mall would be considered only if the location
offered is in a high traffic area with a mix of other fashion tenants. The
Company also plans to pursue opportunities in casinos and high-profile hotels.
The Company develops financial projections for any new proposed site and will
reject any location where it believes break-even operations cannot be achieved
within a three- to six-month period. The opening of a new retail location
represents an aggregate capital requirement of approximately $100,000 to
$200,000, depending on location and size, which includes initial leasehold
expenses and improvements, purchases of furniture, fixtures and equipment and
initial inventory costs.
Since the Company's inventory, accounting and information systems are
highly automated, it believes that it has the present capacity to handle the
accounting, informational and inventory tracking needs for up to 100 stores.
Current management could manage an additional eight stores with minimum
increases in overhead costs, with further additions requiring increased
management and other staffing.
In addition to developing its own new store locations, the Company is
continually investigating the possibility of acquiring companies in similar
lines of business, including faux jewelry, fine jewelry and accessories.
Potential candidates include small retail chains, companies currently engaged
in multimedia faux jewelry sales, as well as former Impostors franchisees.
While the Company continually investigates such acquisition opportunities,
there are no substantive negotiations, arrangements, agreement or
understandings with respect to any potential acquisition.
OTHER MARKETING AND DISTRIBUTION CHANNELS
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Currently, over 99% of the Company's revenues are derived from its retail
store sales. The Company also has limited sales nationally and internationally
through distributors and wholesalers. The Company frequently receives
inquiries from overseas businesses regarding the development of wholesale and
retail distribution of its concept and products in Europe as well as the
Orient. The Company has had no resources to focus on this international demand
and products have been sold in limited amounts to accounts in Australia,
Chile, Italy and Taiwan. The Company plans to increase its international
business by hiring additional persons and/or agents to represent its line of
products internationally, subject to the availability of working capital. The
ability of the Company to fully develop the potential offered by the
international marketplace depends upon both overcoming legal obstacles and the
availability of additional working capital from future operations, of which
there can be no assurance.
The Company plans to develop a catalogue which initially will be
distributed through its retail stores located in tourist areas. Depending on
the results of the in-store distribution, the Company may decide to broaden
the catalogue distribution through direct mailings to new potential customers.
The Company has also explored possible multimedia distribution of its jewelry.
In October, 1996, the Company completed the development of its internet Home
Page. Additionally, the Company has initiated discussions to market its
concept and products to the home shopping networks, and intends, through an
independent producer, to develop a "Concept Program" around its theme of
designer inspired and faux jewelry. Part of this process includes the
licensing of a spokesperson, who may be a celebrity, to add credibility and
entertainment to the Company's product line. The Company expects to have
developed its Concept Program within six to eight months from the date of this
Report, which will then be presented to primarily domestic home shopping
networks. Approximately $100,000 has been budgeted for the development of
these additional marketing channels.
MARKET AND CUSTOMERS
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The Impostors' niche bridges the markets between costume and fine jewelry
by offering high-quality reproductions of classic and designer fine jewelry
and also a collection of 14 karat gold and sterling silver with cubic
zirconia, semi-precious and synthetic stones. The Company's faux jewelry
distinguishes itself from traditional fashion jewelry by the quality of the
metals, stones and craftsmanship utilized in the design and manufacturing
process. While costume jewelry is typically price-pointed in the $5 to $30
range, the majority of the Company's faux jewelry is priced in the $30 to $100
range. The 14 karat gold collection has pricepoints between $45 to $1,000,
with the majority in the $100 to $400 range.
The market for the Company's products is to a large extent defined by a
knowledgeable customer's desire to have the look, feel and design of classic
fine jewelry and expensive diamond and gemstone jewelry, without the cost. The
Company targets women between the ages of 30 and 60 who are either purchasing
jewelry reproductions in place of or to complement expensive fine jewelry, or
professional women who want the look of fine jewelry but are unwilling or
unable to pay the fine jewelry price tag. The Company expects this market to
continue to grow in accordance with the expected increases in the number of
women entering the professional workplace. The Company also expects to benefit
from the maturation of the baby boomer generation who, according to the United
States Census Bureau, will have reached the age of 45 by the year 2000. It has
been the Company's experience that the vast majority of its retail customers
are women purchasing for themselves rather than men purchasing for others.
SUPPLIERS AND VENDORS
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The Company purchases its products from vendors who have an established
history of manufacturing high quality jewelry products. These vendors offer a
standard product line through catalogues and trade shows, and also will
manufacture certain products specially for the Company, for which the Company
will typically be given a 12 to 18 month exclusivity for that item by the
vendor. The Company's relationship with its vendors of high-quality product is
considered a component of its strategic advantage over other competitors. The
Company works closely with its vendors to constantly upgrade the quality of
its products.
The Company's products are currently being purchased 80% from domestic
vendors and 20% from vendors in England, Hong Kong, Italy, Korea, Spain,
Taiwan and Thailand. Most of the inventory is purchased from vendors' existing
inventory and designs, while some is manufactured under special order. Orders
from foreign vendors take 6 to 8 weeks to fill, with U.S. vendors delivering
in approximately 3 to 4 weeks. Most domestic vendors offer the Company terms
of payment of between 30 and 60 days and some offer up to 90 days, while many
international vendors require either prepayment or payment prior to shipment.
The Company continually investigates new sources of merchandise in order to
maximize profit margins and expects to concentrate future purchases to a
larger degree from vendors in the Pacific Rim. The Company considers the
identity of its sources of supply to be proprietary to the extent that a
product's quality, source and price bear directly upon the Company's
competitive advantage. The Company does not rely on any single source of
supply and could readily obtain product from new suppliers should any given
source become unavailable. The Company has not experienced any difficulty in
obtaining merchandise and does not anticipate any future problems or
restriction of availability.
COMPETITION
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Because the Company's products address a market niche for the look and
feel of fine jewelry without the cost, it experiences both indirect and direct
competition from others. Indirect competition comes from costume and fashion
jewelry at the low end and fine jewelry on the upper end, with the Company's
faux jewelry and 14 karat gold with synthetic stones bridging the gap. The
Company believes its products are superior both in design and quality to
jewelry offered by traditional fashion jewelry retailers. Conversely, the
Company's advantage over expensive fine gemstone and diamond jewelry is one of
cost without a commensurate sacrifice in appearance or durability.
The Company competes directly with vendors and other retailers of faux
jewelry and indirectly with specialty retailers of accessories and related
items. Department stores typically offer lower-end costume and fashion
jewelry, or on occasion will offer higher-end faux jewelry designed by their
own exclusive designers. While some department stores will have a limited
offering of faux jewelry, the Company's exclusive emphasis on this specialty
market niche is designed to attract the customer who has already decided to
purchase faux jewelry rather than either costume jewelry or the high cost
genuine piece of fine jewelry. However, the Company is not alone in this
marketing approach, as there exist a few other chains of retailers offering
faux jewelry in a directly competitive manner. The Company is aware of only
one other business, N. Landau Hyman, that has a comparable number of specialty
retail stores that focus on the sale of faux jewelry. Other specialty
retailers who focus on the sale of faux jewelry include Elegant Illusions
which has approximately 13 faux jewelry stores, Mystique which has 4 stores in
Florida, and Diamond Essence which has 3 retail stores in New York and Chicago
and a direct marketing catalogue concentrating exclusively on 14 karat gold
jewelry with faux gemstones. The Company's advantage, if any, over these other
retailers lies in its relationships with its vendors, some of which it
considers to be highly proprietary, economies of scale offered by the
Company's ability to purchase large quantities of inventory from vendors who
have certain minimum quantity requirements, and in its store locations.
Nevertheless, in order for the Company to continue to be competitive, it must
maintain and expand its desirable store locations and continue to develop its
strong vendor relations, neither of which can be assured.
INTELLECTUAL PROPERTY
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Copyrights, trademarks and trade secrets are the principal protection for
the Company's products, services and reputation. The Company owns federally
registered trademarks for the following names: Impostors(-Registered Mark-),
Impostors De Classique Copy Jewels(-Registered Mark-), Impostors Copy Jewels(-
Registered Mark-), Elegant Pretenders(-Registered Mark-), and The Latest In
Faux(-Registered Mark-). All of the trademarks are considered by the Company
to be valuable property rights. The protection afforded by these intellectual
property rights and the law of trade secrets is believed by the Company to be
adequate protection for its products and or services.
As a reseller of emulations and copies of fine designer jewelry, the
Company must avoid infringing any copyrights or trademarks claimed by the
original designer. A copyright protects the manner of expression of a piece of
a jewelry rather than the idea or concept behind making it. As the Company's
products do not purport to be exact copies, but rather emulations inspired by
other designs, the Company believes that the sale of faux jewelry does not per
se violate the copyright interest of others. Nevertheless, if a particular
jewelry design is subject to copyright protection, that copyright expires
after 75 years, if owned by a corporation, or after 50 years after the
creator's death, if an individual. Prior to 1988, in order for a designer to
claim copyright protection to a piece of jewelry, a copyright notice would
have to have been affixed to the original piece. Thus, any jewelry sold in the
United States before 1988 without a copyright notice is considered to be in
the public domain. However, fine jewelry designed and sold in the United
States after 1988 could be subject to copyright protection without the
necessity of a copyright notice on the original piece. As a result, the
Company has no effective way of determining if a particular piece of fine
jewelry is subject to copyright protection claimed by its original designer.
It is, therefore, important for the Company to ensure that its products do not
purport to be exact copies of an original, but only inspired by the original
designs.
Although infrequent, it is possible for a designer to claim trademark
protection if it can establish that the customer realizes that a particular
piece of jewelry comes from a particular manufacturer. In order to be claimed,
however, a registered trademark indication must usually be placed on the
original piece. The Company takes meticulous precaution to avoid advertising
and marketing strategies that might lead to confusion in the minds of its
customers as to the source or origins of its emulation jewelry.
The Company has developed and adopted methodologies designed to prevent
its infringement of the intellectual property rights of third parties;
however, there can be no assurance that it will not be subject to claims for
inadvertent infringement from time to time. While there have been only four
instances of claimed infringement in the past, when the Company has received
notice of inadvertent infringement, it has been its policy to voluntarily
cease and desist selling the particular product. As an average store has more
than 1,000 different items of jewelry on display and offered for sale, the
Company has not experienced, and does not expect to experience, any material
adverse effects on its revenues in these instances.
LICENSE ARRANGEMENTS
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The Company has granted a total of three licenses to former Impostors
franchisees granting to them the right to use the Impostors trademark in a
total of five retail locations for a period of one year. Each license requires
the payment of $5,000 per store per year, and is renewable annually at the
discretion of the Company. It is not expected that these license arrangements
will represent a material portion of the Company's future activity.
EMPLOYEES AND CONSULTANT
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The Company currently has approximately 110 full-time and 120 part-time
employees, of which 17 are employed in the Company's corporate offices. In
addition, the Company typically hires additional part-time employees during
the peak holiday season. Each retail store is staffed by a manager and
assistant manager, as well as one or more sales personnel. The Company also
has four area managers and one regional manager (for the East Coast). Store
managers are hired and supervised by area managers. All management and staff
personnel are employed directly by the Company.
The Company believes that it currently has sufficient management to add
eight additional stores over the next 12 months. Further store expansions will
require additions to management and staff on a case-by-case basis. The success
of future expansion will depend to a large extent on the Company's ability to
attract, motivate and retain highly-qualified personnel.
As President and Chief Executive Officer, Ms. Greenberg serves under a
written employment agreement expiring on June 20, 1999. She receives a base
salary of $7,500 per month, which will increase to $10,833 per month the
earlier of June 20, 1997 or the completion of the Company's proposed offering.
She is also eligible to participate in the Company's Incentive Stock Option
Plan ("ISOP"). Ms. Greenberg was granted incentive stock options pursuant to
the ISOP exercisable to purchase, in the aggregate, 40,000 shares of Common
Stock of the Company at an exercise price of $1.875 per share, all of which
are fully vested, and incentive stock options exercisable to purchase an
additional 20,000 shares of common stock at a price of $2.50 per share, of
which 15,000 are vested, and 5,000 will vest in March, 1998, and incentive
stock options exercisable to purchase an additional 25,000 shares at a price
of $3.25 per share, of which 15,000 will vest on June 20, 1997 and 10,000 will
vest on June 20, 1998.
In January 1996, the Company hired Todd Huss as its Chief Financial
Officer. Mr. Huss brings with him nearly 10 years of experience as a licensed
certified public accountant, primarily with KPMG Peat Marwick and nearly
five years experience in the retail industry as Controller/Chief Financial
Officer.
Effective February 1996, the Company retained Jack Brandon, the former
Vice-President of a 200 store portrait studio retail chain. It is expected
that Mr. Brandon will devote approximately 30 to 40 hours per month on behalf
of the Company, exclusive of his services as a director. Mr. Brandon also
provides construction oversight services for new Impostor locations and
remodels. Fees for these services are paid on a job-by-job basis, which have
averaged approximately $4,000 per month.
SEASONALITY
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The Company's business is highly seasonal with its mall locations
generating 20% of revenues during the Christmas holiday season. The Company's
15 tourist locations experience fluctuations, based upon such factors as
seasonality, economic conditions and other factors effecting tourism in their
particular locations.
PROPERTIES
----------
The Company currently maintains executive offices at 3033 S. Parker Road,
Suite 120, Aurora, Colorado 80014. The offices consist of approximately 5,000
square feet which the Company holds under a 5-year lease expiring in the year
2001, for a rental of $5,150 per month. The lease is guaranteed by four of the
Company's current and former directors. The opening of the Company's executive
offices represented the culmination of a strategic plan to close its executive
offices in San Francisco, California to reduce operating expenses. The Company
expects the move to represent substantial savings over the next several years.
The Company's 39 current and committed retail locations are or will be
operated under commercial leases with expiration dates ranging from 1997 to
2007. Store size varies from 310 to 1,200 square feet with annual sales
ranging from $220,000 to $1,500,000. Each lease requires the payment of a
minimum base rent and additional payments for operating expenses, taxes,
insurance, in some cases, and additional rent based upon a percent of gross
sales. The Company monitors on a daily basis sales, margin and inventory
turn-over for each store location. This information is used not only to
develop criteria for additional store expansions but also to determine
acceptable parameters for lease renewals as they arise. In the ordinary course
of business, the Company is continually engaged in discussions with its
various commercial landlords over issues that arise from time to time under
the leases. All of the Company's existing commercial retail leases are in full
force and effect as of the date of this Report.
LEGAL PROCEEDINGS
-----------------
The Company from time-to-time is involved in commercial disputes in the
ordinary course of business with vendors, landlords and other parties which on
occasion become the subject matter of litigation. At the present time, the
Company is not a party to any legal proceedings outside of the ordinary course
of business or which would have a material adverse impact upon the Company's
operations or properties.
During 1995 and 1996, the Company received requests for information from
the U.S. Securities and Exchange Commission ("SEC") related to an
investigation begun by the SEC during 1994 into various matters, including
certain transactions in securities by a former officer and director of the
Company. The Company has fully complied with all requests. The Company has
been informed that the SEC staff intends to recommend to the Commission that
an action be brought against certain persons including three of the Company's
former shareholders and two of its former directors. Although there can be no
assurance, the Company's present management does not believe that this
investigation of the activities of these persons will have a direct material
impact on the Company or its business operations.
MATTERS SUBMITTED TO VOTE OF SECURITY HOLDERS
---------------------------------------------
The Company did not submit any matters to a vote of its shareholders
during the fourth quarter of its fiscal year ended January 26, 1997.
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PART II
MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
PRICE RANGE OF COMMON STOCK
- ---------------------------
The outstanding shares of Common Stock are traded over-the-counter and
quoted on the OTC Electronic Bulletin Board on a limited and sporadic basis
under the symbol "PMRCA." The reported high and low bid and asked prices for
the Common Stock are shown below for the period through April 8, 1997. The
prices presented are bid and asked prices which represented prices between
broker-dealers and do not include retail mark-ups and mark-downs or any
commission to the broker-dealer. The prices do not necessarily reflect actual
transactions.
<TABLE>
<CAPTION>
BID (1) ASK (1)
HIGH LOW HIGH LOW
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<S> <C> <C> <C> <C>
1994
- ----
First Quarter $7.50 $6.25 $10.00 $10.00
Second Quarter 7.50 7.50 10.00 10.00
Third Quarter 7.50 7.50 10.00 10.00
Fourth Quarter 5.00 5.00 10.00 10.00
1995
- ----
First Quarter (2) (2) (2) (2)
Second Quarter $5.00 $5.00 $10.00 $10.00
Third Quarter 5.00 1.25 10.00 3.75
Fourth Quarter 3.75 1.875 8.125 6.25
1996
- ----
First Quarter $2.50 $1.875 $8.125 $4.375
Second Quarter 2.50 1.875 4.375 4.375
Third Quarter 3.44 2.50 5.94 4.06
Fourth Quarter 2.50 2.50 3.75 3.44
1997
- ----
First Quarter (through $2.625 $2.25 $4.50 $4.00
April 8, 1997)
___________________________
(1) All prices have been adjusted to give retroactive effect to a
one-for-five reverse stock split which was effective on December 20,
1996.
(2) No trading activity during the period.
</TABLE>
The bid and ask prices of the Company's Common Stock on April 8, 1997
were $2.25 and $4.00, respectively, as quoted on the OTC Electronic Bulletin
Board. As of April 8, 1997 there were approximately 625 shareholders of record
of the Company's Common Stock.
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this report.
RETAIL FISCAL YEAR
- ------------------
The method of financial reporting is a fifty-two to fifty-three
(52-53) week fiscal year ending on the last Sunday in January of each year.
Likewise, reporting quarters end on the Sunday closest to the calendar end of
April, July and October. Each reporting quarter contains 13 weeks of
operations.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Approximately 20% of the Company's business is generated during the
Christmas holiday season. The Company's cash position will therefore be the
highest at the end of December as compared to any other month of the year, and
tends to decrease during the first, second, and third quarters of the fiscal
year. On June 24, 1996, the Company successfully completed a bridge financing
in which it sold an aggregate of 416,670 shares of Series A Convertible
Preferred Stock and Class B Warrants entitling the holders to purchase 41,667
shares of Common Stock, realizing net proceeds of $225,000. These proceeds
were primarily used to finance the remodeling projects for the St. Louis and
Tucson locations, to partially finance the completion of a new store in the
Park Meadows Mall in Denver, Colorado, and to purchase various fixtures and
equipment associated with improvements for other existing locations.
On December 27, 1996, the Company consummated the sale of $1,120,000 in
Convertible Promissory Notes and 200,000 Class B Warrants, realizing net
proceeds of $1,041,600. From the net proceeds, the Company utilized $624,325
to redeem from certain former securityholders an aggregate of 189,180 shares
of Common Stock and 32,500 Class C Warrants. This redemption was necessary to
facilitate the Company' proposed secondary financing and concurrent listing of
its securities on the Nasdaq Stock Market. The Convertible Notes bear
interest at the rate of 12% per annum, payable quarterly and are convertible
into shares of Common Stock commencing April 1, 1997, at the option of the
holder, at a conversion value of $2.80 per share. However, if (i) the Company
fails to complete a public offering of its securities by June 30, 1997 or
(ii) the principal balance of the Convertible Notes is not retired by the
Company by their Maturity Date, the conversion value is reduced to $1.00 per
share. The Company has agreed to retire the Convertible Notes from the
proceeds of its proposed public offering. Unless earlier converted or
retired, the Convertible Notes mature and become due and payable on
December 26, 1999. The obligation of the Company to repay the Convertible
Notes is secured by a subordinated security agreement covering all of the
Company's tangible and intangible assets.
The Company used the remaining proceeds from the Bridge Note Financing to
pay the accrued cost incurred in the Company's opening of five new stores
during the fourth quarter, and for working capital. The proceeds of the
Bridge Note Financing were not sufficient to meet all of the Company's capital
commitments for its six additional new stores which have opened recently and
three additional stores that are scheduled to open over the next four months.
Those capital commitments will require additional financing which a portion of
the proceeds of the Company's proposed offering have been allocated to
satisfy.
The increases in accounts payable of $861,590, from $291,905 at January
28, 1996 to $1,153,495 at January 26, 1997 reflect expenses for new store
construction and existing store remodels that were completed during the last
six months of fiscal 1997, and expenses to purchase fixtures and equipment, to
finance the increase in inventories for new stores opened in fiscal 1997 and
anticipated new store openings in the fourth quarter and three new stores
opened in February, 1997 and to finance deferred offering costs for the
proposed public offering.
As a result, the Company's cash position decreased by $115,623 from
$327,198 at January 28, 1996 to $211,575 at January 26, 1997.
During fiscal 1997, the Company continued its efforts to liquidate its
common stock position in Global Casinos, Inc. Therefore, marketable
securities decreased from $45,113 at January 28, 1996 to $6,813 at January 26,
1997. Management intends to liquidate its remaining securities holdings as
allowed by the general market conditions.
During fiscal 1997, the Company invested $1,332,575 in property and
equipment. Approximately $1,027,000 of this investment represents leasehold
improvements and investments in equipment and fixtures in connection with new
store projects completed in Denver, Colorado, Bellevue, Washington, six new
stores recently opened in Florida and New Jersey, and three new stores opened
in February, 1997 in Florida and Nevada. Approximately $184,000 of this
investment represents leasehold improvements and investments in equipment and
fixtures in connection with three existing locations remodeled in San Mateo,
California, St. Louis, Missouri, and Tucson, Arizona. Approximately $75,000
represents investments in corporate office improvements and purchases of
furniture and fixtures in connection with the relocation of the corporate
office in January, 1996. The remaining approximately $46,000 represents minor
improvements and maintenance of other existing store locations.
Therefore, property and equipment, net of accumulated depreciation,
increased $1,056,212, from $977,727 at January 28, 1996, to $2,033,939 at
January 26, 1997. At January 28, 1996, the Company's trademark assets were
$87, 833 net of accumulated amortization, which represented the goodwill
associated with the Impostors trademark and other intellectual property
acquired as part of the purchase of the Impostors' assets in February, 1994.
As of January 26, 1997, the Company had total outstanding liabilities of
$3,814,371 compared to $1,994,590 at January 28, 1996, representing an
increase of $1,819,781 which was due to an increase in current liabilities of
$739,941 from $1,178,567 at January 28, 1996 to $1,918,508 at January 26, 1997
and the result of the $1,120,000 Convertible Promissory Notes executed on
December 27, 1996. During fiscal 1997, management continued its efforts to
purchase larger quantities of inventories to maintain favorable inventory
costs and to increase inventory levels to accommodate the opening of the six
new locations which occurred in the months of August, November and December.
As a result of the foregoing, and the fiscal 1997 increase in accounts payable
of $861,590 as discussed above, working capital decreased by $515,113 from
$683,172 at January 28, 1996 to $168,059 at January 26, 1997.
The amount borrowed from related parties was $74,420 at January 26, 1997
which reflects a reduction of $24,459 from the January 28, 1996 figure of
$98,879. During the 1997 fiscal year the Company also reduced other short-
and long-term notes by $181,663. However, other notes payable increased from
$1,138,766 at January 28, 1996 to $2,055,936 at January 26, 1997, which
increase was due to the execution of the $1,120,000 Convertible Promissory
Notes executed on December 27, 1996. As of April 1, 1997, the Company was in
arrears in the payment of three notes totaling, in the aggregate, $195,500.
Management has been in discussions with the three noteholders and plans to
retire these three notes with the proceeds from the proposed public offering.
Other than the $1,120,000 Convertible Notes, the largest portion of the
Company's long-term debt is comprised of a $635,000 promissory note, which
note carries interest at the rate of 10% per annum, is payable in monthly
interest payments of approximately $5,300 and is due February 22, 1998. The
note is secured by the Company's assets.
As a result of the Company's net income for the fiscal year ended January
26, 1997 of $354,524, the accumulated deficit decreased from $1,716,031 at
January 28, 1996 to a deficit of $1,361,507 at January 26, 1997. However,
although the Company's equity increased by the $225,000 proceeds realized from
the Bridge Offering in June, 1996, the December 27, 1996 repurchase of 189,180
common shares as discussed above for a total consideration of $624,325,
reduced stockholders' equity in the 1997 fiscal year from $1,042,204 at
January 28, 1996 to $997,403 at January 26, 1997.
Net cash provided by operating activities improved for the fiscal year
ended January 26, 1997 to $1,093,363 as compared to net cash provided by
operating activities of $284,890 for the fiscal year ended January 28, 1996.
The principal cause of the change in cash flow generated by operations for the
fiscal years ended January 26, 1997 and the fiscal year ended January 28, 1996
was the increase in accounts payable and other accrued liabilities of $901,609
and $99,834 for the two periods respectively. The improvement in cash
generated by operations also reflects the reduction of overhead costs by
approximately $130,000, and an improvement from an operating loss for the
fiscal year ended January 28, 1996 of $37,298 to an operating income of
$326,439 for the fiscal year ended January 26, 1997.
During the fiscal year ended January 26, 1997, the Company invested
$1,332,575 in capital equipment, which reflects the investments in leasehold
improvements, furniture and equipment discussed above.
Net cash provided by financing activities for the fiscal years ended
January 26, 1997 and January 28, 1996 was $123,589 and $36,281, respectively.
The change of $87,308 represents the net effect of the Company obtaining
additional financing during fiscal 1997 of approximately $1,345,000 from a
$225,000 convertible preferred offering in June, 1996 and convertible
promissory notes of $1,120,000 on December 27, 1996. As discussed above,
$624,325 of the funds were utilized to repurchase 189,180 shares of common
stock to facilitate the Company's listing on the Nasdaq Stock Market. The
remainder of the funds were used to finance to Company's retail chain
expansion, and to fund the Company's deferred offering costs of $425,423 at
January 26, 1997.
The foregoing resulted in a decrease in the Company's cash position of
$115,623 from $327,198 January 28, 1996 to $211,575 at January 26, 1997
At January 26, 1997, the Company had a net operating loss carryforward
("NOL") for federal tax purposes of approximately $298,000 that may be
utilized to offset future profits. Due to the public offering, the usage of
the NOL may be limited in any one period under Section 382 of the Internal
Revenue Code.
As mentioned above, during the months of August, September, October,
November and December, the Company opened six additional retail locations.
These locations are at the Park Meadows Mall in Denver, Colorado, the
Coastland Center in Naples, Florida, Sawgrass Mills in Sunrise, Florida,
Bayside Marketplace in Miami, Florida, Menlo Park in Edison, New Jersey, and
Garden State Plaza in Paramus, New Jersey. In addition, during the month of
February, 1997 the Company opened three additional locations, one at the Rio
Hotel and Casino in Las Vegas, Nevada, one at Beachplace, Fort Lauderdale,
Florida, and one location at Miami International Mall in Miami, Florida. The
Company has executed four additional leases to open new locations in the
second quarter of fiscal 1998. These stores will be located in Orange County,
California, Ft. Lauderdale, Florida and Washington, DC. Other sites are
currently being evaluated. Depending on location and size, the opening of a
new retail location represents an aggregate capital commitment of
approximately $100,000-$200,000 which includes leasehold improvements,
furniture, fixture, equipment and inventory.
The Company believes the proceeds from its proposed offering, along with
cash flow generated by operations will be sufficient to meet the Company's
capital needs over the next 12 months. However, if the Company is
unsuccessful in securing the contemplated financing, its ability to pursue
additional opportunities for distribution and retail store expansion will be
significantly impaired and the results of operations for future periods may be
adversely affected.
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth for the periods indicated, the percentage
relationship between selected items in the Statements of Operations to
revenues:
<TABLE>
<CAPTION>
Fiscal Fiscal
Year Ended Year Ended
January 28, 1996 January 26, 1997
----------------- --------------
<S> <C> <C> <C> <C>
Revenues $9,069,840 100% $9,773,700 100%
Cost of goods sold 2,690,658 29.7% 2,823,733 28.9%
Gross margin 6,379,182 70.3% 6,949,967 71.1%
Operating expenses 6,416,480 70.7% 6,623,528 67.8%
Operating income (loss) (37,298) (0.4)% 326,439 3.3%
Other income (expenses), net (279,924) (3.1%) 6,465 nil
Income (loss) before
discontinued operations (156,222) (1.7)% 340,904 3.5%
Net income (loss) available
to common shareholders 114,219 1.3 % 341,949 3.5%
Net income (loss) per common
share .23 .44
</TABLE>
RESULTS OF OPERATIONS - FISCAL 1997 COMPARED TO FISCAL 1996
- -----------------------------------------------------------
The Company's revenues increased from $9,069,480 for the period ended
January 28, 1996 to $9,773,700 for the fiscal year ended January 26, 1997, an
increase of $704,220 or 7.8%. The Company revenues of $9,773,700 are
reflective of the 26 retail locations that were open for the entire fiscal
year and the additional six locations opened during the third and fourth
quarter of fiscal 1997. In August, 1996, the Company opened its 27th location
at the new Park Meadows Mall in Denver, Colorado. In November, 1996, the
Company opened three additional locations, at the Coastland Center in Naples,
Florida, at Sawgrass Mills, Sunrise, Florida, and at the Bayside Galleria in
Miami, Florida. In December, 1996 the Company opened two locations in New
Jersey, one at Garden State Plaza, in Paramus, New Jersey and one location at
the Menlo Park Mall in Edison, New Jersey.
During fiscal 1997, management's focus was to a large extent directed on
the expansion of the Company's retail chain and also on the Company's
secondary financing. Wholesale sales therefore decreased in the period from
$111,033 at January 28, 1996 to $33,856 at January 26, 1997, a decrease of
$77,177. Upon completion of the public financing, management expects to
devote additional personnel and resources to develop its wholesale business.
However, for the next twelve months, the wholesale business is expected to
remain a small percentage of the Company's total revenues.
For the fiscal year ended January 26, 1997, the Company's same store
sales (consisting of 26 stores) increased by 3.8% or approximately $320,048.
The same store sales increase can be attributed to a continued improvement in
the Company's merchandising strategy, focusing mainly on high quality,
designer inspired jewelry collections, and the remodeling of three locations
in fiscal 1997.
Although management expects that same store sales will continue to
increase in the future, especially as existing stores are remodeled and
refixtured, it is anticipated that any material future increase in total sales
will depend on the Company's ability to expand its number of stores. The
Company expects that over the next twelve months planned store expansion will
not require a proportionate increase in corporate overhead expenses.
For the fiscal year ended January 26, 1997, cost of goods sold was
$2,823,733, and the gross margin was $6,949,967, or approximately 71.1%. For
the fiscal year ended January 28, 1996, cost of goods sold was $2,960,658, and
the gross margin was $6,379,182, or approximately 70.3%. Included in cost of
goods sold are inventory shrinkage of $62,493 and $80,266 for the fiscal years
ending January 28, 1996 and January 26, 1997 respectively. Management
attributes the improvement in gross margin of 0.8% to less promotional
activity and improved buying opportunities offering lower merchandise costs.
Selling, general and administrative expenses were $6,079,410 and
$6,330,097 for the fiscal years ended January 28, 1996 and January 26, 1997,
respectively. As a percentage of sales, selling, general and administrative
expenses decreased from 67.0% in fiscal 1996 to 64.8% in fiscal 1997. The
percentage decrease reflects the Company's ability to add additional retail
locations without a proportionate increase in corporate overhead expenses as
discussed above. The majority of the selling and administrative expenses are
comprised of personnel expenses which amounted to $2,898,069 and $2,945,431 in
fiscal 1996 and fiscal 1997 respectively. The other major operating expense
category is occupancy costs, which was $1,974,132 and $2,067,727 for the
fiscal years ending January 28, 1996 and January 26, 1997 respectively.
Depreciation and amortization expense was $337,070 and 293,431 for fiscal 1996
and fiscal 1997, respectively. The decrease of $43,639 is representative of a
reduced depreciatable asset base, and the addition of new stores late in the
fiscal 1997 year.
Included in selling, general and administrative expenses are corporate
overhead expenses in the amount of $1,386,701 and $1,518,416 for the fiscal
years ended January 26, 1997 and January 28, 1996, respectively, which
represents a decrease of $131,715. As a percentage of sales, corporate
overhead expenses decreased from of 16.7% of sales in fiscal 1996 to 14.2% at
January 26, 1997. The Company attributes the decrease in corporate overhead
expenses to lower personnel and occupancy costs realized from the relocation
of the corporate offices from California to Colorado in January, 1996.
As a result of the foregoing, the Company's operating income improved
from an operating loss of $37,298 for the year ended January 28, 1996 to an
operating profit of $326,439 for the year ended January 26, 1997, an
improvement of $363,737 over the prior year.
Net interest expense was $111,022 and $108, 180 for the fiscal years
ended January 26, 1997, and January 26, 1996, respectively. The increase of
$2,840 represents additional interest expense incurred from the execution of
the $1,120,000 convertible notes on December 27, 1996, which interest is 12%
or approximately $11,200 per month. As discussed above, the Company utilized
the majority of the net proceeds from this financing to repurchase 189,180
common shares for a total purchase price of $624,325, while the remainder
$417,275 was used to finance new store expansion. The Company's gain on
marketable securities of $12,264 at January 26, 1997 compared to a loss of
$182,643 at January 28, 1996 related to the Company's holdings in Global
Casinos, Inc. During fiscal 1997, the Company sold most of its holdings of
these securities, and intends to liquidate its remaining position as market
conditions permits
For the fiscal year ended January 26, 1997, the Company recorded gains on
settlements of $55,626. Gains on settlements includes a gain of approximately
$25,000 which represented a final settlement of a recorded liability and funds
held in escrow that were used to satisfy certain liabilities to unsecured
creditors of the predecessor company. Gains in settlements also includes
gains from debt settlements of approximately $26,000 realized from settlements
with former franchisees.
For the fiscal year ended January 26, 1997, other income was $55,297
compared to $10,889 for the same twelve month period in fiscal 1996. Other
income also included $25,000 in license fees from three former franchisees who
operate five independent Impostors locations. These former franchisees have
executed license agreements with the Company which entitles them to use the
Impostors name to operate their stores for one year. The license fee for one
store is $5,000 annually, which agreements may be renewed annually at the
Company's discretion. The Company recently renewed these agreements to extend
until February 1, 1998. As a result of the foregoing, income before
discontinued operations, net of income tax benefit was $340,904 compared to a
loss of $156,222 for fiscal 1996.
Income from discontinued operations of $13,620 and $270,441 for fiscal
1997 and fiscal 1996, respectively, represents negotiated settlements with
creditors relating to the Company's previous gaming operations.
Based on the foregoing, the Company reported a net income available to
common shareholders of $341,949 for the fiscal year ended January 26, 1997,
which translates to a net income per share of $.44 based on weighted average
shares outstanding of 777,048. For the fiscal year that ended January 28,
1996, net income available to common shareholders was $114,219 or $.23 per
share, based on 495,800 weighted average shares outstanding.
The Company's continued profitability will depend on the Company's
ability to further expand its number of retail locations in profitable
markets, the ability to generate favorable lease cost/sales ratios, the
ability to continue to control overhead expenses and the capability to take
advantage of other distribution opportunities.
Other than the foregoing, management knows of no trends, or other
demands, commitments, events or uncertainties that will result in, or that are
reasonably likely to result in a material impact on the income and expenses of
the Company.
IMPAIRMENT OF LONG-LIVED ASSETS
- -------------------------------
In March 1996, the Financial Accounting Standards Board issued a
statement entitled "Accounting for Impairment of Long-Lived Assets." In the
event that facts and circumstances indicate that the cost of assets or other
assets may be impaired, an evaluation of recover ability would be performed.
If an evaluation is required, the estimated future in discounted cash flows
associated with the asset would be compared to asset's carrying amount to
determine if a write-down to market value or discounted cash flow value is
required. Adoption of FAS 121 had no effect on the January 26, 1997 financial
statements.
STOCK-BASED COMPENSATION
- ------------------------
In October 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Stock-Based Compensation" (FAS 123). The new
statement is effective for fiscal years beginning after December 15, 1995.
FAS 123 encourages, but does not require, companies to recognize compensation
expense for grants of stock, stock options, and other equity instruments to
employees based on fair value. Companies that do not adopt the fair value
accounting rules must disclose the impact of adopting the new method in the
notes to the financial statements. Transactions in equity instruments with
non-employees for goods or services must be accounted for on the fair value
method. The Company has elected not to adopt the fair value accounting
prescribed by FAS 123 for employees, and will be subject only to the
disclosure requirements prescribed by FAS 123.
Other than what has been discussed above, management knows of no trends,
or other demands, commitments, events or uncertainties that will result in, or
that are reasonably likely to result in a material impact on the income and
expenses of the Company.
<PAGE>
<PAGE>
PART III
Part III, Items 9, 10, 11 and 12 are incorporated herein by reference
from the Registrant's definitive proxy statement relating to its Annual
Meeting of Shareholders which will be filed in an amendment within 120 days of
January 26, 1997.
PART IV
EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
- --------------------
The following financial statements are filed as part of this report:
1. Independent Auditor's Reports
2. Balance Sheet - For the Year Ended January 26, 1997
3. Statements of Operations - For the Fiscal Years Ended January
26, 1997 and January 28, 1996
4. Statements of Changes In Stockholders' Equity - For the Period
from January 1, 1995 through January 26, 1997
5. Statements of Cash Flows - For the Fiscal Years Ended January
26, 1997 and January 28, 1996
6. Notes to Financial Statements
FINANCIAL STATEMENT SCHEDULES
- -----------------------------
None
CURRENT REPORTS ON FORM 8-K
- ---------------------------
None
EXHIBITS
- --------
Exhibit No Title
***** 1.1 Underwriting Agreement
1.2 Agreement Among Underwriters
1.3 Master Selected Dealer Agreement
1.4 Financial Advisory Agreement
1.5 Form of Lock-up Agreement
1.6 Letter of Intent with Cohig & Associates, Inc.
** 3.1 Articles of Incorporation
** 3.2 Certificate and Articles of Amendment
** 3.3 By-Laws
** 4.1 Specimen Certificate of Common Stock
* 4.2 Specimen Class A Warrant Certificate
* 4.3 Designations of Series A Convertible Preferred Stock
* 4.4 1992 Stock Incentive Plan
* 4.5 1995 Employee Stock Purchase Plan
4.6 Representative's Share Option Agreement
4.7 Representative's Warrant Option Agreement
***** 4.8 Specimen Convertible Promissory Note
***** 4.9 Specimen Convertible Promissory Note and Warrant Purchase
Agreement
5.0 Opinion of Neuman & Cobb
** 10.1 Copy of signed Stock Transfer Agent Agreement
* 10.2 Warrant Agreement
*** 10.3 Amendment No. 1 to Definitive Agreement and Plan of
Reorganization, dated March 16, 1993
*** 10.4 Amended Plan of Reorganization dated January 24, 1994
*** 10.5 Order Confirming Amended Plan of Reorganization dated
February 24, 1994
*** 10.6 Commitment Letter dated January 4, 1994
*** 10.7 Amendment to Commitment Letter dated January 21, 1994
*** 10.8 Conveyance and Bill of Sale dated March 3, 1994
*** 10.9 Assumption Agreement dated March 3, 1994
* 10.10 Employment Agreement with Sissel Greenberg
* 10.11 Consulting Agreement with Cohig & Associates, Inc.
**** 16 Letter of Schumacher & Bruce, Inc. on change in certifying
accountant
- ------------------------------
* Incorporated by reference from the Company's Registration
Statement on Form SB-2, SEC File No. 333-8741.
** Incorporated by reference from the Company's Registration
Statement on Form S-1; SEC File No. 33-42701.
*** Incorporated by reference from the Company's Current Report on
Form 8-K dated March 3, 1994
**** Incorporated by reference from the Company's Current Report on
Form 8-K dated February 16, 1995
***** Incorporated by reference from the Company's Registration
Statement on Form SB-2, S.E.C. File No. 333-19901
<PAGE>
<PAGE>
PREMIER CONCEPTS, INC.
Financial Statements
For the Fiscal Years Ended
January 26, 1997 and January 28, 1996
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITOR'S REPORTS. . . . . . . . . . . . . . . . . . . . . . . F-2
BALANCE SHEET - For the Year Ended January 26, 1997 . . . . . . . . . . . F-3
STATEMENTS OF OPERATIONS - For the Fiscal Year Ended January 26, 1997
and January 28, 1996 . . . . . . . . . . . . . . . . . . . . . . . . F-4
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - For the Fiscal
Years Ended January 26, 1997 and January 28, 1996 . . . . . . . . . . F-5
STATEMENTS OF CASH FLOWS - For the Fiscal Year Ended
January 26, 1997 and January 28, 1996 . . . . . . . . . . . . . . . . F-6
NOTES TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Premier Concepts, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of Premier Concepts, Inc. as of
January 26, 1997, and the related statements of operations, changes in
stockholders' equity, and cash flows for the fiscal year ended January 26,
1997 and January 28, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Premier Concepts, Inc., as of
January 26, 1997, and the results of its operations and its cash flows for the
fiscal year ended January 26, 1997 and January 28, 1996, in conformity with
generally accepted accounting principles.
/s/Hein + Associates llp
Hein + Associates llp
Denver, Colorado
April 2, 1997
<PAGE>
<PAGE>
PREMIER CONCEPTS, INC.
BALANCE SHEET
JANUARY 26, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $ 211,575
Marketable securities 6,813
Merchandise inventories 1,749,643
Prepaid expenses and other 118,536
-------------
Total current assets 2,086,567
Property and Equipment, net 2,033,939
Other Assets:
Trademarks, net of accumulated amortization of $56,167 87,833
Deferred offering costs 425,423
Deferred tax asset 39,000
Other 139,012
-------------
Total Assets $ 4,811,774
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of long-term debt:
Related parties $ 74,420
Other 263,312
Accounts payable 1,153,495
Accrued liabilities 427,281
-------------
Total current liabilities 1,918,508
Long-term Debt, less current portion 1,792,624
Deferred Rent 103,239
-------------
Total liabilities 3,814,371
-------------
Commitments (Note 5)
Stockholders' Equity:
Preferred stock, $.10 par value, 20,000,000 shares
authorized; 416,670 shares issued and outstanding
at January 26, 1997 41,667
Common stock, $.002 par value; 850,000,000 shares
authorized; 560,167 shares issued and outstanding 1,120
Additional paid-in capital 2,316,123
Accumulated deficit (1,361,507)
-------------
Total Stockholders' Equity 997,403
-------------
Total Liabilities and Stockholders' Equity $ 4,811,774
===========
See accompanying notes to these financial statements.
</TABLE>
<PAGE>
<PAGE>
PREMIER CONCEPTS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the For the
Fiscal Fiscal
Year Ended Year Ended
January 26, January 28,
1997 1996
-------------- --------------
<S> <C> <C>
Net Revenues:
Retail $ 9,739,844 $ 8,958,807
Wholesale 33,856 111,033
------------ ------------
Total revenues 9,773,700 9,069,840
Cost of Goods Sold 2,823,733 2,690,658
------------ ------------
Gross margin 6,949,967 6,379,182
Operating Expenses:
Selling, general and administrative 6,330,097 6,079,410
Depreciation and amortization 293,431 337,070
------------ ------------
Total operating expenses 6,623,528 6,416,480
------------ ------------
Operating Income (Loss) 326,439 (37,298)
Other Income (Expense):
Interest expense, net (116,722) (108,180)
Gain (loss) on marketable securities, net 12,264 (182,643)
Gain on settlements 55,626 -
Other 55,297 10,899
------------ ------------
Other, net 6,465 (279,924)
------------ ------------
Income (Loss) Before Income Tax Benefit and
Discontinued Operations - 332,904 (317,222)
Income tax benefit 8,000 161,000
------------ ------------
Income (Loss) Before Discontinued Operations 340,904 (156,222)
Discontinued Operations:
Income from discontinued operations, net
of income tax expense of $8,000 and
$161,000 for the years ended January
26, 1997 and January 28, 1996 13,620 270,441
------------ ------------
Net Income $ 354,524 $ 114,219
=========== ===========
Net Income Available to Common Shareholders $ 341,949 $ 114,219
=========== ===========
Net Income (Loss) Per Common Share:
Before discontinued operations $ .44 $ (.31)
Discontinued operations .02 .54
Dividends applicable to preferred stock (.02) -
------------ ------------
Net income per common share $ .44 $ .23
=========== ===========
Weighted Average Common Shares Outstanding 777,408 495,800
=========== ===========
See accompanying notes to these financial statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
PREMIER CONCEPTS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 28, 1996 THROUGH JANUARY 26, 1997
<CAPTION>
Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
------- ------- --------- ------ ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 30, 1995 - $ - 434,388 $ 868 $2,245,167 $(1,830,250) $ 415,785
Common stock issued for:
Private placement - - 234,000 468 282,032 - 282,500
Settlement of claims - - 53,959 108 184,592 - 184,700
Services - - 27,000 54 44,946 - 45,000
Net income - - - - - 114,219 114,219
------- ------- --------- ----- ----------- ----------- -----------
BALANCES, January 28, 1996 - - 749,347 1,498 2,756,737 (1,716,031) 1,042,204
Preferred stock issued
for cash 416,670 41,667 - - 183,333 - 225,000
Redemption and cancel-
lation of common stock - - (189,180) (378) (623,947) - (624,325)
Net income - - - - 354,524 354,524
------- ------- --------- ----- ----------- ----------- -----------
BALANCES, January 26, 1997 416,670 $41,667 560,167 $1,120 $2,316,123 $(1,361,507) $ 997,403
======= ======= ======= ====== ========== ============ ==========
See accompanying notes to these financial statements.
</TABLE>
<PAGE>
<PAGE>
PREMIER CONCEPTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Fiscal For the Fiscal
Year Ended Year Ended
January 26, January 28,
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 354,524 $ 114,219
Adjustments to reconcile net income
to net cash from operating activities:
Stock for services - 45,000
Gain on settlements of debt (55,626) -
Reduction of accounts payable -
discontinued operations (21,620) (431,441)
Provision for store closure - 8,307
Depreciation and amortization 293,431 337,070
Deferred tax asset (39,000) -
(Gain) loss on marketable securities (12,264) 182,643
Other, net (46,584) (13,201)
Changes in operating assets and liabilities:
(Increase) decrease in:
Marketable securities, net 50,564 156,374
Merchandise inventories (355,718) (197,665)
Other assets (23,033) (40,870)
Increase (decrease) in:
Accounts payable and accrued liabilities 901,609 99,834
Other liabilities 47,080 24,620
----------- ----------
Net cash provided by operating activities 1,093,363 284,890
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property
and equipment (1,332,575) (165,137)
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred offering costs (425,423) -
Proceeds from the issuance of preferred
stock 225,000 -
Proceeds from issuance of common stock - 282,500
Proceeds from issuance of notes payable 1,130,000 100,000
Payment on notes payable (181,663) (346,219)
Redemption of common stock (624,325) -
----------- ----------
Net cash provided by financing activities 123,589 36,281
----------- ----------
INCREASE (DECREASE) IN CASH (115,623) 156,034
CASH AND CASH EQUIVALENTS, beginning
of period 327,198 171,164
----------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 211,575 $ 327,198
========== =========
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 111,744 $ 102,134
========== =========
Conversion of liabilities to equity
securities $ - $ 184,700
========== =========
See accompanying notes to these financial statements.
</TABLE>
<PAGE>
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------------------------------
NATURE OF OPERATIONS -
--------------------
Premier Concepts, Inc. (the Company) was incorporated in the state of
Colorado in 1988. During 1993, the Company acquired certain real estate
located in a limited stakes gaming city in Colorado, which were exchanged
during 1993 for common stock of Global Casinos, Inc. (Global), a company
which had two common directors. During 1994, the Company purchased out of
bankruptcy certain assets and liabilities of American Fashion Jewels, Inc.
(Impostors) and, in a separate transaction, Mirage Concepts, Inc.
(Mirage), both of which are retail chains of reproduction jewelry stores.
As of January 26, 1997 the Company operated 32 retail stores with a
geographic concentration of stores in California, including one store in
San Francisco, California that accounted for approximately 14% and 17% of
total revenues during the fiscal year ended January 26, 1997 and
January 28, 1996, respectively.
FISCAL YEAR -
-----------
The Company's year is a 52/53-week period ending on the last Sunday in
January. Fiscal year ended January 26, 1997 (fiscal 1997) and January 28,
1996 (fiscal 1996) contained 364 days of activity.
INVENTORIES -
-----------
Inventories consist primarily of merchandise which is held for resale.
Inventories are stated at the lower of cost or market, as calculated using
the average-cost method.
PROPERTY AND EQUIPMENT -
----------------------
Property and equipment is stated at cost. Depreciation is computed over
the estimated useful lives of the assets using the straight-line method
generally over a 5 to 10-year period. Leasehold improvements are
amortized on the straight-line method over the lesser of the lease term or
the useful life. Expenditures for ordinary maintenance and repairs are
charged to expense as incurred. Upon retirement or disposal of assets,
the cost and accumulated depreciation are eliminated from the account and
any gain or loss is reflected in the statement of operations.
TRADEMARKS -
----------
A portion of the Impostors purchase price was allocated to trademarks (see
Note 2). This cost is being amortized over 10 years. The Company
evaluates the recoverability of this intangible based on projected,
undiscounted future cash flows exclusive of interest.
DEFERRED RENT -
-------------
Many of the Company's store leases contain predetermined fixed escalations
of the minimum rentals during the initial term. For these leases, the
Company recognizes the related rental expense on a straight-line basis and
records the difference as deferred rent.
DEFERRED OFFERING COSTS -
-----------------------
The amount represents costs incurred in connection with a proposed public
offering that was in process at January 26, 1997. This amount will be
offset against the proceeds if the offering is successful, or expensed in
operations if the offering is unsuccessful.
MARKETABLE SECURITIES -
---------------------
Trading securities, all of which are equity investments, are carried at
market value at the balance sheet date. All of the marketable securities
at January 26, 1997 are common stock of Global. Realized gain (loss) on
marketable securities is determined based on specific identification of
securities sold.
The change in the net unrealized holding loss for the years ended
January 26, 1997 and January 28, 1996 was $142,402 and $20,243,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS -
-----------------------------------
The estimated fair values for financial instruments are determined at
discrete points in time based on relevant market information. These
estimates involve uncertainties and cannot be determined with precision.
The carrying amounts of marketable securities, accounts payable, and
accrued liabilities approximate fair value. The fair value of certain
notes payable is less than their carrying value as generally their
interest rates are lower than the Company's current effective annual
borrowing rate, however, the difference is not considered significant.
CASH EQUIVALENTS -
----------------
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months or
less to be cash equivalents.
NET INCOME (LOSS) PER COMMON SHARE -
----------------------------------
Net income (loss) per common share is calculated based upon the weighted
average number of common shares outstanding during the periods presented.
Dividends, including those accrued but not yet paid on preferred stock is
deducted to arrive at net income (loss) available to the common
shareholders. Dilutive options, convertible preferred stock and warrants
have been included in the calculation of net income per common share for
the fiscal year ended January 26, 1997 and January 28, 1996.
LICENSE AGREEMENTS -
------------------
The Company grants license agreements to entities for the use of the
Impostor's name. License fees are recognized as income on a straight-line
basis over the term of the agreement.
INCOME TAXES -
------------
The Company accounts for income taxes under SFAS No. 109 which requires
recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined, based on the difference between the financial
statements and tax bases of asset and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse.
USE OF ESTIMATES -
----------------
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts reported in
these financial statements and accompanying notes. Actual results could
differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS -
-------------------------------
Effective January 29, 1996, the Company adopted Financial Accounting
Standards Board Statement 121 (FAS 121). In the event that facts and
circumstances indicate that the cost of assets or other assets may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value
is required. Adoption of FAS 121 had no effect on the January 26, 1997
financial statements.
PROVISION FOR STORE CLOSURES AND WRITE-DOWN PRODUCTIVE ASSETS -
-------------------------------------------------------------
The Company accrues costs associated with store closures that are
incremental to other costs incurred prior to commitment date as a direct
result of the exit plan. The Company also accrues any amounts to be
incurred under contractual obligations that existed prior to the
commitment date and will continue after the exit plan is completed with no
economic benefit.
STOCK BASED COMPENSATION -
------------------------
In fiscal 1997, the Company adopted Financial Accounting Standards Board
"Accounting for Stock-Based Compensation" (FAS 123). FAS 123 encourages,
but does not require, companies to recognize compensation expense for
grants of stock, stock options, and other equity instruments to employees
based on fair value. Companies that do not adopt the fair value
accounting rules must disclose the impact of adopting the new method in
the notes to the financial statements. Transactions in equity instruments
with non-employees for goods or services must be accounted for on the fair
value method. The Company has elected not to adopt the fair value
accounting prescribed by FAS 123 for employees, and is subject only to the
disclosure requirements prescribed by FAS 123.
2. DISPOSITIONS:
------------
In 1993, the Company exchanged its ownership in certain real estate and a
note receivable for 2,500,000 and 200,000 shares of common stock,
respectively, in Global, of which 2,409,700 shares of Global's common
stock were distributed to stockholders' of the Company during 1993. The
remaining 290,300 shares were held by the Company, which represents less
than 5% of Global's outstanding common stock. After distributing the
Global common stock to the Company's stockholders, there remained
substantial liabilities to uncollateralized creditors related to prior
activities of the Company. As of January 26, 1997 and January 28, 1996,
the Company had accounts payable of $45,865 and $80,884, respectively,
that related to the prior activities of the Company. Certain of these
creditors have filed claims against the Company demanding payment. The
Company has negotiated settlements with certain creditors, which has
resulted in income before income tax expense, totaling approximately $-0-
and $209,000 during the years ended January 26, 1997 and January 28, 1996,
respectively. The Company also recorded approximately $24,000 and
$222,000 of income during the years ended January 26, 1997 and January 28,
1996, respectively, as a result of the reduction in recorded amounts of
accounts payable based upon management's estimates of amounts which may
ultimately be paid, but the Company has not received formal releases from
payment from the creditors. Accordingly, these amounts were recorded as
income from discontinued operations, net of income tax expense.
3. PROPERTY AND EQUIPMENT:
----------------------
At January 26, 1997, property and equipment consists of the following:
<TABLE>
<S> <C> <C>
Furniture, fixtures and equipment $ 1,145,577
Leasehold improvements 1,749,882
------------
2,895,459
Less accumulated depreciation (861,520)
------------
$ 2,033,939
===========
</TABLE>
Depreciation expense for the years ended January 26, 1997 and January 28,
1996 was $269,044 and $316,670, respectively.
4. NOTES PAYABLE AND LONG-TERM DEBT:
--------------------------------
At January 26, 1997, notes payable and long-term debt consist of the
following:
<TABLE>
<S> <C> <C>
Related Parties
---------------
Note payable to a stockholder, at 12% principal
and interest due December 31, 1996. The Company
has been in discussions with the noteholder to
extend the maturity date of the note. $ 35,500
Notes and advances payable to stockholders of
the Company, payable on demand, non-interest
bearing. 28,920
Other 10,000
--------
Total related parties - all current $ 74,420
========
Other
-----
Convertible notes payable. Interest payable
quarterly at 12%. Principal due December 26,
1999 (see further discussion below). $ 1,120,000
Note payable to a bank, interest payable
monthly at 10%, principal payable in February
1998, collateralized by cash and inventory. 635,000
Notes payable to creditors of Impostors from
bankruptcy settlement, payable in monthly
installments plus accrued interest at 6% to 8%,
over variable terms through December 1999.
A note totaling $35,000 is guaranteed by former
stockholders of the Company. 111,414
Note payable to a entity, interest payable
monthly at 12%, principal payable in January
1996. Management has been in discussions with
the noteholder to pay off the note with part of
the proceeds from a proposed public offering. 100,000
Note payable to an entity, payable in monthly
installments of $10,000 plus accrued interest
at 12%. Principal due October 5, 1996. The
Company has been in discussions with the
noteholder to pay off the note with the proceeds
of the offering. 60,000
Other 29,522
------------
2,055,936
Less current portion (263,312)
------------
$ 1,792,624
===========
</TABLE>
Principal payments on the above obligations at January 26, 1997 are due as
follows:
<TABLE>
<CAPTION>
Related
Parties Other
-------- ------------
<S> <C> <C> <C>
1998 $ 74,420 $ 263,312
1999 - 661,541
2000 - 1,131,083
-------- ----------
$ 74,420 $ 2,055,936
======== ===========
</TABLE>
On December 27, 1996, the Company completed the sale of $1,120,000 in
Convertible Notes and 200,000 Class B Warrants, realizing net proceeds of
$1,041,600. From the net proceeds, the Company utilized $624,325 to
redeem an aggregate of 189,180 shares of Common Stock and 32,500 Class C
Warrants from certain former securityholders. The Convertible Notes bear
interest at the rate of 12% per annum, payable quarterly and are
convertible into shares of Common Stock commencing April 1, 1997, at the
option of the holder, at a conversion value of $2.80 per share. However,
if (i) the Company fails to complete a public offering of its securities
by June 30, 1997 or (ii) the principal balance of the Convertible notes is
not retired by the Company by their maturity date, the conversion value is
reduced to $1.00 per share. The Company has agreed to retire the
Convertible Notes from the proceeds of a proposed public offering. Unless
earlier converted or retired, the Convertible Notes mature and become due
and payable on December 26, 1999. The obligation of the Company to repay
the Convertible Notes is collateralized by a subordinated security
agreement covering all of the Company's tangible and intangible assets.
5. COMMITMENTS:
-----------
LEASE COMMITMENTS -
-----------------
The Company leases its offices and retail facilities under operating
leases for terms expiring at various dates from 1997 to 2012. The
corporate office lease has been guaranteed by a director and former
directors of the Company. The aggregate minimum annual lease payments
under leases for the fiscal year are as follows:
<TABLE>
<S> <C> <C>
1998 $ 2,138,431
1999 2,065,399
2000 1,991,567
2001 1,781,665
Thereafter 5,351,257
------------
Total minimum lease payments $ 13,328,319
============
</TABLE>
Most leases also provide for payment of operating expenses, real estate
taxes and in some cases for additional rent based on a percentage of
sales. Rental expense was $2,067,727 and $1,977,718 for the years ended
January 26, 1997 and January 28, 1996, respectively.
LITIGATION SETTLEMENT -
---------------------
The Company entered into a commitment to guarantee the value of
55,000 shares of Global stock and 2,750 shares of the Company's common
stock related to a settlement with a former creditor. Under the terms of
the agreement, the Company agreed to buy back or guarantee that the total
"asking" price of the combined common shares would equal $200,000 at
March 1, 1995. In the year ended January 28, 1996, the Company settled
with the former creditor for the issuance of an additional 46,792 shares
of the Company's stock, valued at $171,625.
6. STOCKHOLDERS' EQUITY:
--------------------
STOCK REDEMPTION -
----------------
During December 1996, the Company redeemed from certain securityholders,
189,180 shares of its common stock and 32,500 of its Class C warrants for
$624,325.
PREFERRED STOCK -
---------------
The Board of Directors has authority to divide the class of the preferred
stock into series and to fix and determine the relative rights and
preferences of the shares of any such series as permitted by the Company's
articles of incorporation at the time of designation.
During June 1996, the Company sold 208,335 units at $1.20 per unit in a
private offering. Each unit includes two shares of Series A Convertible
Preferred Stock and one warrant. Five warrants currently entitle the
holder to purchase one share of common stock at $5 per share and are
exercisable through June 1998. Each share of Series A Preferred Stock is
entitled to $.051 per annum cumulative dividends and is convertible
commencing in June 1997 at a rate of five shares of preferred stock for
one share of common stock. If the Company completes a public offering of
common stock, the preferred shares will automatically convert into 102,041
shares of common stock and five warrants will automatically be exchanged
for two warrants offered in the proposed public offering.
COMMON SHARES -
-------------
In December 1996, the Company's shareholders approved a 1 for 5 reverse
stock split and a change in the par value from $.0004 to $.002 per share.
Accordingly, all common stock reflected in the accompanying financial
statements and notes reflect this reverse split.
During 1994, the Company sold, in a private placement, 92,750 units for
$10.00 per unit. Each unit consisted of two shares of common stock and a
warrant for the purchase one share of common stock at a purchase price of
$10.00 per share, exercisable through December 31, 1995. The Company has
extended the term of the warrants to December 31, 1997. As discussed
above, the Company redeemed warrants for the purchase of 32,500 shares of
common stock for $10,000.
During the year ended January 28, 1996, the Company sold in a private
placement, 234,000 shares of common stock at $1.25 per share. Also,
during the year ended January 28, 1996, the Company issued 53,959 shares
of common stock in settlement of liabilities and guarantees of liabilities
and 27,000 shares of common stock in payment for services, including 2,400
issued to an officer and director, and 2,600 issued to a director. The
Company has agreed to register 102,041 shares, under the Securities Act of
1933.
EMPLOYEE STOCK PURCHASE PLAN -
----------------------------
During June 12, 1995, the Company adopted a qualified Employee Stock
Purchase Plan (ESPP). The Company has been authorized through the ESPP to
offer up to 20,000 shares per year over a three-year term, or a total of
60,000 shares, to the Company's employees. The ESPP includes certain
restrictions which preclude participation by part-time employees and
employees owning 5% or more of the Company's common stock. The purchase
price for the shares may not be less than 85% of the market value of the
stock on either the enrollment date or the exercise date as those terms
are defined in the ESPP. No shares of common stock have been issued under
the ESPP and there have been no subscriptions of employees to participate
in the plan.
STOCK OPTION PLAN -
-----------------
The Company has an Incentive Stock Option Plan (Plan) which provides for
the grant of options to purchase up to 230,000 shares of the Company's
common stock to officers and employees of the Company. Options are
granted at a price equal to the market value at the date of grant.
Options were granted in 1994 to an officer/director on 40,000 shares at an
exercise price of $5; in fiscal 1996, the exercise price was reduced to
$1.875 per share, and the term was extended to June 20, 2001. An
additional 20,000 incentive stock options were granted to other employees
in fiscal 1996 at $1.875 per share, which expire in December 2000 and of
which 7,000 were forfeited in fiscal 1997. All of these options are
currently vested. No options have been exercised.
In March 1996, the Company granted incentive stock options for
80,000 shares to employees, at an exercise price of $2.50, which expire in
2001. During 1996, 20,000 of these options were canceled due to
termination of an employee. Of the remaining stock options for
60,000 shares of common stock, 30,000 of these incentive stock options
have vested immediately and 15,000 vest on each of the first and second
anniversary dates.
Subsequent to January 26, 1997, the Company granted incentive stock
options for 25,000 shares of common stock to the Company's president, at
an exercise price of $3.25 and which expire in January 2002. Options for
the purchase of (i) 15,000 shares of common stock vest in June 1997,
(ii) 10,000 shares of common stock vest in June 1998.
Subsequent to January 26, 1997, the Company granted incentive stock
options for 28,000 shares of common stock to employees at an exercise
price of $3.25, and which expire in January 2002. Options for the
purchase of (i) 13,000 shares of common stock vested immediately,
(ii) 10,000 shares of common stock vest in January 1998, and
(iii) 5,000 shares of common stock vest in January 1999.
In April 1996, the Company adopted an non-qualified option plan (Director
Plan) for outside directors. Each outside director is to be granted stock
options for each full year of service for the purchase of 5,000 shares of
common stock at a price equal to 100% of the fair market value of the
Company's common stock at the date of grant. During fiscal 1996, the
Company issued options on a total of 25,000 shares to directors of the
Company under the Director Plan and options for 12,000 shares to directors
in return for guaranteeing the Company's corporate office lease, at an
exercise price of $2.50 and which expire in 2000. During fiscal 1997, the
Board of Directors approved an increase in options from 5,000 to 10,000
that will be granted to outside directors for fiscal 1998.
Subsequent to January 26, 1997, the Company granted to a director an
option for the purchase of 5,000 shares at $3.25 per share for services
for the fiscal year ended January 26, 1997, which expires January 2002.
The following is a table of activity under these plans:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Outstanding, beginning
of year 97,000 $2.113 40,000 $5.00
Granted to:
Employees, including
exchanges 80,000 2.500 60,000 1.875
Directors - - 25,000 2.500
Directors - lease
guarantee - - 12,000 2.500
Exchanged* - - (40,000) (5.000)
Forfeited (27,000) 2.338 - -
-------- --------
Outstanding, end of year 150,000 2.279 97,000 2.113
======= ======
------------------------
<FN>
* All options outstanding at January 29, 1995 were reissued with an
exercise price at $1.875.
</TABLE>
For all options granted during fiscal 1997 and 1996, the weighted average
market price of the Company's common stock on the grant date was
approximately equal to the weighted average exercise price. Due to the
extremely limited trading activity of the Company's common stock, for the
purpose of pricing Incentive Stock Options and Non-qualified Stock
Options, the fair market value of the Company's common stock is determined
by the average of the bid price as quoted on the OTC Electronic Bulletin
Board on the date of grant and a date two weeks subsequent to the date of
grant.
The weighted average contractual life for all options as of January 26,
1997 was approximately 3.8 years, with the exercise prices ranging from
$1.875 to $2.50. At January 26, 1997, options for 120,000 were
exercisable and options for the remaining shares become exercisable pro
rata through fiscal 1999. If not previously exercised, options
outstanding at January 26, 1997, will expire as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
of Shares Price
--------- --------
<S> <C> <C> <C>
1998 5,000 $1.875
1999 - -
2000 - -
2001 45,000 2.388
2002 100,000 2.250
------- ------
150,000 $2.279
</TABLE>
PRO FORMA STOCK-BASED COMPENSATION DISCLOSURES -
----------------------------------------------
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock options which are granted to employees.
Accordingly, no compensation cost has been recognized for grants of
options to employees since the exercise prices were not less than the fair
value of the Company's common stock on the grant dates. Had compensation
cost been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of FAS 123, the Company's net
income and earnings per share would have been reduced to the pro forma
amount indicated below.
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------
January 26, January 28,
1997 1996
----------- -----------
<S> <C> <C> <C>
Net income (loss) applicable to common
shareholders:
As reported $ 341,949 $ 114,219
Pro forma 275,541 (44,599)
Net income (loss) per common share:
As reported 0.44 0.23
Pro forma 0.35 (.09)
</TABLE>
The fair value of each employee option granted in fiscal year 1997 and
1996, was estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------
January 26, January 28,
1997 1996
----------- -----------
<S> <C> <C> <C>
Expected volatility 176% 167%
Risk-Free interest rate 6.5% 6.5%
Expected dividends - -
Expected terms (in years) 5.0 5.0
</TABLE>
7. INCOME TAXES:
------------
The Company's actual effective tax rate differs from U.S. Federal
corporate income tax rate of 34% as follows for the fiscal year ended:
<TABLE>
<CAPTION>
January 26, January 28,
1997 1996
----------- -----------
<S> <C> <C> <C>
Statutory rate 34% 34%
Effect of graduated rate - (4.6%)
State income taxes, net of Federal
income tax benefit 3.3% 3.3%
Reduction in valuation allowance
due to usage of net operating
loss carryforwards and change
in temporary differences (38.3)% (32.7%)
Other 1% -
------- -------
-0-% -0-%
==== ====
</TABLE>
The components of the net deferred tax asset recognized as of January 26,
1997 are as follows:
<TABLE>
<S> <C> <C>
Long-term deferred tax assets (liabilities):
Net operating loss carryforwards $ 110,000
Valuation allowance (71,000)
----------
Net long-term deferred tax asset $ 39,000
=========
The valuation allowance was $325,000 at January 28, 1996 decreased by
$254,000 for the year ended January 26, 1997.
At January 26, 1997, the Company had net operating loss carryforwards for
Federal tax purposes of approximately $298,000. Certain of the loss
carryforwards are subject to restrictions due to a greater than 50% change
in ownership in prior years. The loss carryforwards, unless utilized,
will expire from 2009 through 2010.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PREMIER CONCEPTS, INC.
Date: 4/15/97 By: /s/ Sissel Greenberg
________________________ ___________________________________
Sissel Greenberg, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Sissel Greenberg President, Chief Executive 4/15/97
- ------------------------ Officer and Director ----------
Sissel Greenberg
/s/ William Nandor Director 4/15/97
- ----------------------- ----------
William Nandor
/s/ Simona Katz Yuffa Director 4/15/97
- ----------------------- ----------
Simona Katz Yuffa
/s/ Jack Brandon Director 4/15/97
- ----------------------- ----------
Jack Brandon
/s/ Todd Huss Chief Financial Officer 4/15/97
- ------------------------ Principal Accounting Officer ----------
Todd Huss
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENT OF OPERATIONS FOUND ON PAGES F-3 AND F-4 OF THE COMPANY'S
FORM 10-KSB FOR THE YEAR ENDED JANUARY 26, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-26-1997
<PERIOD-END> JAN-26-1997
<CASH> 211,575
<SECURITIES> 6,813
<RECEIVABLES> 33,930
<ALLOWANCES> (19,000)
<INVENTORY> 1,749,643
<CURRENT-ASSETS> 2,086,567
<PP&E> 2,895,459
<DEPRECIATION> 861,520
<TOTAL-ASSETS> 4,811,774
<CURRENT-LIABILITIES> 1,918,508
<BONDS> 0
0
41,667
<COMMON> 1,120
<OTHER-SE> 2,316,123
<TOTAL-LIABILITY-AND-EQUITY> 4,811,774
<SALES> 9,773,700
<TOTAL-REVENUES> 9,773,700
<CGS> 2,823,733
<TOTAL-COSTS> 2,823,733
<OTHER-EXPENSES> 6,623,528
<LOSS-PROVISION> 9,362
<INTEREST-EXPENSE> 116,722
<INCOME-PRETAX> 332,904
<INCOME-TAX> (8,000)
<INCOME-CONTINUING> 340,904
<DISCONTINUED> 13,620
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 354,524
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
